Unbeknownst to many, there is a review into the state taxation system going on down here in Tassie. While not looking into the level of taxation, they are taking the opportunity to look into the methods of taxation – i.e if we are going to scavenge just under $1B from our economy, what is the best way to do it?
A discussion paper was produced, going through the system as it stands, some of the considerations for thought, as well as some of the thoughts coming out of the Henry Tax Review (recent federal review, generally ignored by the government except for the MRRT fiasco).
Public submissions were called for, and received from a small number of people and a larger number of concerned organisation – the usual suspects if you like. As a whole, they make for interesting reading. Well I found them interesting anyway.
The biggest tax we take here is payroll tax. And here is the irony – no one – not a single submission that I noted, nor the discussion paper itself, thinks that it is a good tax to have. Basically it is a tax on employing more people. At some point, someone thought this was a good idea – probably because they could pin it on the ‘evil large corporations’ who can ‘afford to pay’, for very little political cost.
The other major object of derision, was stamp duty. Again, a good earner, but one which adds to the cost of buying / selling land – most telling when selling in one place to buy for the same value in another – it actually makes up the largest portion of relocation costs.
The gambling tax was considered acceptable – acting as a brake on a vice – although as a tax it costs nearly as much to collect as the revenue it earns. This suggests that it is not so much a bad tax as a badly arranged tax, and work needs to be done to cut collection/implementation costs.
The big mover in terms of ‘desired’ (i.e. if we must be taxed) taxes has to be land tax. Land tax is a tax on the value of land, and only the land (i.e the base it is charged against does not include the value of the improvements made to it such as housing). There are a number of positives to land tax as a form of taxation :
- the amount you have to spend to collect it is minimal
- it is a tax on value that is provided by the community, not by the owner. If you think about it, land values aren’t varied by what is done on the land, just by the services and amenities that it provides or that are provided to it – the desirability of the land.
- taxing land in this fashion tends to drive land towards its most valuable use.
- property will become more affordable.
In its best form, it is a simple rate levied equally across all land equally. While it can be complicated by using escalating rates based upon value, and certain types of land can be excluded, both of these measures work to reduce the ‘benefits’ of the tax.
So should we just dump payroll tax and stamp duty, replacing them with a broad based, simple land tax? No; at least not without due consideration. While this could be done to keep revenue at its current levels for the government, that is only half the story. It would result in significant changes in the distribution of that impost on the community. Although it can be argued that a simple land value tax is more equitable, anyone on the wrong side of the changes will view it as unfair. This is because perceived fairness is based upon not a moral or techinical judgement about what is right or what is best, but upon how it affects the individual, here, now.
So how then can change be carried out to move us toward a more equitable taxation system, in a manner that is accepted as fair?
Taxation results in a regular series of payments, over time. Commercially, this has a pretty well understood value – called the present value. It is the fair price that is paid now to receive that set of payments over time. We experience it in loans we take out, and returns we get from investments.
Simply, if the system is to change, the fair manner of doing so is to exchange the present value of the expected series of payments in return for the cessation or commencement of that set of payments.
It is to the benefit of the companies paying payroll tax that those payments are no longer required, as well as to the community at large. So, in exchange for no longer having to pay payroll tax, a single final payment is made, say 4-5 times the normal payment. If necessary, the government may even help providing commercial funding for this.
At the same time, if the government is now going to impose a level of land tax across the board, the funding received from the termination of payroll tax is distributed as a one off payment to all landholders in proportion to the change they are about to experience in taxation.
In the end, not everyone would be happy with this. But the grumbling would be muted. Something was given, something received.
Final note: The biggest objections to the introduction of a land tax come from two sources – local councils and the property council. Local councils don’t want anything that is going to get confused with rates; the property council doesn’t want anything that improves affordability. Against the wishes of the local government, I’d suggest that land tax and council rates be rolled into a single charge, collected by the councils, and that councils are then levied by the state government. The property council gets a major win with the abolition of stamp duty – they can suck it up on this one.