Slap bang on the front of today’s AFR is an article about the proposal by the NSW and Victorian governments to reform tax; specifically to transition away from a one off stamp duty on property purchases to an annual land tax.
This change has been a long time cooking and apparently:
Former Telstra boss David Thodey is due to deliver his Federal Financial Relations report to NSW Treasurer Dominic Perrottet this week. The need for tax reform and abolishing stamp duty, which discourages people from moving closer to jobs and is a barrier to home ownership, will be a key theme in the recommendations.
The stamp duty vs land tax debate, like all tax reform debates has its share of silly commentary, including in this case from one of the people involved in the review, John Freebairn one of the members of this Thodey Review, who said:
With stamp duty, someone who moves every five years because of changing jobs contributes a hell of a lot to health and education…
Someone who sits in the same house forever contributes nothing.
Contributes nothing except for GST (which is the biggest source of revenue for States), perhaps income tax, perhaps capital gains tax, perhaps, perhaps, perhaps.
However, putting aside for a moment the issues associated with such a change including the abject lack of rigor in current mass land valuation methodologies and the issues associated with such a transition, TAFKAS vehemently opposes such a change until certain preconditions are met.
There is no doubt that the current system of taxes in Australia is terrible and an economic drag. Payroll tax, whilst efficient in assessment and collection, is a pretty nasty. And the stamp duty issues are also broadly evident.
However, underlying this debate is that state budgets are challenged due to state expenditures growing faster than state revenues, and notably ever increasing health and education expenditure.
The fundamental problem with this proposition is that it assumes that the current methods of delivering government services is optimal. Anyone who has had any recent exposure to the public health and education systems would probably agree that there are much better ways of doing things.
To keep spending more and more money on an inefficient and ineffective method of delivery is like increasing the volume of water going into a bucket with no bottom and being surprised that the bucket never fills.
There cannot and should not be any tax reform until there is spending reform. Not only can the key services that states deliver be delivered much more efficiently and effectively, there are many areas of government expenditure that are not required at all and should just cease.
All tax reform will do is provide the resources to remove the fiscal constraints on government and allow the same inefficiencies and ineffectiveness to perpetuate.
There is no better demonstration of this than the recent decision of the NSW Government to cancel the redevelopment of ANZ Stadium, the former Olympic Stadium. This is a perfectly functional stadium less than 25 years old. And the only reason the Government was prepared to entertain this project was because it had the money to spend, but no longer has.
Look also the 1996-2007 Government of John Howard.
The GST reform which handily for the Howard Government coincided with the resources boom which resulted in waves and waves for money flowing into the Commonwealth Treasury. Before this, the Howard government was not only fiscally conservative but also generally politically conservative.
After the money started to flow, Mr Howard had the confidence to not only go on all sorts of fiscal adventures (baby bonuses, childcare rebates, health care cards, school flag poles), but it gave him the confidence to go on other policy adventures. Without the confidence of the cash flows, it is unlikely that the Howard Government would have done Workchoices which as retarded industrial relations reform in this country for a generation. It also created the conditions to wind back reforms to pre-Keating standards.
Resources are a constraint on government – on all policy levels. We should not remove those constraints until government is better trained.
Innovation is not about a new device or a new website. It is about a better way of doing things. It can be as simple as changing operating hours or changing the composition of the team.
Innovation is generally driven by constraint … if we don’t find a better way to do this we will go out of business. Business cannot “reform” its pricing model to generate more revenue to meet ever expanding expenses. Business does not have the luxury of a police force to enforce its prices. If business does not reform and innovate, it dies.
No tax reform until spending reform. And throw in some regulatory reform along with that.