Australian Treasury boss Martin Parkinson’s recent call for states to solve their financial problem with an increase to Payroll Tax is wrong on so many levels. It does however highlight three things impacting on Australia’s international competitiveness.
The Federal Government has a complete inability to drive real reform of taxation to increase Australian productivity, as opposed to redistribution from the productive economy. Glenn Stevens has long expressed the view that Australia may do ok in rough weather but it has risked wasting its comparative advantage in good times. Politically motivated chair shuffling has now seen two full terms of avoidance at a time when we needed our best efforts. Today Shane Oliver Head of Investment Strategy and Chief Economist at AMP Capital said “problem is tax rises will only damage productivity. Need a new round of supply side reforms focussed on less tax, deregulation and less government.”
It can only be assumed that Treasury is viewing the merits of Payroll Tax through milk bottle lenses of their undergraduate text books. For theoretically, a universally applied threshold free Payroll Tax would be reasonably efficient, and marginally less distortional than a post Presidential debate press release. In real life there isn’t a state Treasury that has seen a payroll tax like that since Sir Henry Parkes ran the game. Instead, Payroll Tax has a threshold with the habits of a Kings Cross night shift worker. Application of exemptions, thresholds, and rates impose costs on job creation and the cost of doing business.
At a time the Federal and State policy makers should be keenly focused on productivity, competitiveness and minimising the impact of the ‘Structural adjustment we have to have’ we appear to be advocating a tax which imposts employment and encourages investment in capital in the productivity equation for anyone running a business. Perhaps Treasury holds the view that increasing tax on employment will hasten structural adjustment consistent with their private view on the impact of carbon tax.
If as Say’s Law makes clear ‘supply creates demand’ why would we be advocating an increase in a tax on production and employment. Surely Shane Oliver is right. It is time for a new reform agenda focussed on less tax, deregulation, and less Government at both a State and Federal level.