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DAN TEHAN | Australian Financial Review | September 8, 2015

It has been a long 16 years since Australia undertook significant tax reform and we are all the poorer for it. National tax reform in a federation needs to happen at least every decade and it’s time the states realised this. Tax reform can’t be written by Canberra alone. It’s time for the premiers of Australia to stand up and be counted in writing the next chapter of our tax reform story.

In 1999 the Howard government announced the Intergovernmental Agreement on tax reform as part of “A New Tax System” and displayed a means by which the two levels of government could co-ordinate to get the greatest bang for the reform buck.

For the Howard government, it meant tackling the GST to reduce or get rid of a number of inefficient revenue streams that hit individuals and businesses. It led to a reduction in the corporate tax rate, which delivered a more competitive economy.

For the state governments, it meant the repeal of inefficient taxes in return for the guaranteed funding of the GST. There are few who would kindly remember the various wholesale sales taxes, for example.

This trimming down meant a direct dividend to the taxpayer and the economy at all levels.

The agreement signalled a new era in Commonwealth-state relations, one where the states got a cut of federal revenue with no strings attached. It was only by reforming at the national and the state level simultaneously that all governments reaped the rewards of true reform.

Looking back from 2015, however, it is clear that complacency among the states has returned. They have not rid themselves of inefficient taxes despite the increase in federal revenue.

Home buyers across the country are still being slogged $16 billion each year in stamp duty. If you’re looking to take out insurance in Victoria on a car, or home and contents, you’re chipping in to the state’s $1 billion insurance tax revenue stream.

These were both taxes the states signed up to throw out last century under “A New Tax System”. Still they remain despite the price of housing for first-home buyers or the communal good created by individuals being covered by insurance policies. The reason these inefficient taxes are still hanging around is simple – the states have lost their zeal to reform and keep looking to the federal government to fund their responsibilities.

Stamp duty alone now provides 24 per cent of the states’ revenue.

Australia has the second-highest reliance on stamp duty of all the Organisation for Economic Co-operation and Development countries, behind only Korea and ahead of Turkey, and it is nearly three times the OECD’s average as a percentage of total taxation.

Not only is stamp duty a tax that many countries have abandoned but the impact of it is felt directly at the hip pocket. The burden of stamp duty in Melbourne on a median-priced house has increased from 2.6 per cent in 1988 to 5.1 per cent in 2011.

Insurance taxes equally mean that those most in need are the least able to afford the price inflation caused by these taxes. Reports since 2007 clearly outline that retirees and single parents in particular are at risk of being priced out of the insurance market because of the tax burden.

It is time we had a realistic conversation between governments again about how we can effectively abandon these inefficient and distortionary taxes to provide an efficient revenue base for the states and sustainable tax cuts federally.

It is here where our federal system can continue the job of tax reform by having the premiers commit to a new round of tax reform at the state level to effectively implement tax reform at the national level.

The Coalition’s tax white paper needs the constructive input of the states. This is a national conversation that we must have. It is the premiers who should collectively share the lead by providing a real and credible vision for the future of our nation’s tax system. We can’t afford to wait any longer.

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WORKING HARD

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DELIVERING