Tax reform takes from wealthy, gives to poor

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THE Quinlan Review of taxation in the ACT sets the groundwork for more progressive forms of taxation.

Even before the release of the report, Treasurer Andrew Barr was pointing out that the tax reform process would take two decades and was busily attempting to reassure Canberrans that there would not be sudden and dramatic changes.

Of course not; It is an election year.

The fact that this report has been released six months out from an election reveals some interesting insights into how the Labor government in the ACT is positioning itself.

It seems like a politically “courageous” move. However, Chief Minister, Katy Gallagher, is keen to stamp her own brand on the government. This is a government that has served three terms and is looking for a fourth one. They are attempting to paint the picture of a new government, a new leader, a government with new, fresh ideas.

Courageous, yes. But not too courageous! Andrew Barr sat on the report from the beginning of the year releasing on Federal Budget eve. The chances of the media staying focused on this review for a sustained period are quite limited. But then a report of such high calibre needs careful consideration and a thoughtful response rather than one that is marred by politicking, exaggeration and scare tactics. However, the reality is identified in the report: “A shift in the economic incidence of a tax creates winners and losers”.

It seems we are all winners when a report talks about abolishing duty on conveyances, general and life insurance. However, the report is quite clear that this is about replacing revenue. Where savings are made in one area the revenue will have to be made up in another.

The challenge is to use an evolutionary process to ensure that the replacement taxes are more progressive than the revenue-raising measures they are replacing.

The ACT Taxation Review was chaired by former ACT Deputy Chief Minister and Labor Treasurer, Ted Quinlan, who was supported by the ACT Under Treasurer, Megan Smithies and Prof Alan Duncan, from the National Centre for Social and Economic Modelling at the University of Canberra.

They based their thinking on developing the fairest possible system without undermining the ability of the ACT to operate in a comparative way with the other jurisdictions.

Fairness and equity have been drivers. The downside for the Government is that this means a change in which there will be a greater tax burden for wealthier citizens, the most articulate and the best connected members of the community.

In effect, they are taking from the wealthy to give to the poor. This is explained by them as: “Equity – in-principle, taxes should be both horizontally and vertically equitable. Horizontally equitable taxes apply to people in similar financial circumstances in the same way. Vertically equitable taxes increase with income and so are about an individual’s capacity to pay”. They also worked to three other principles – stability, efficiency and simplicity.

The report offers the following summary: “Four key taxes raise the majority of revenue in the ACT: payroll tax, conveyance duty, general rates and land tax. Other taxes and levies also play an important role in the provision of government services to the Canberra community. Land-based revenue is the predominant tax base in the ACT”.

Land-based taxation provides one of the more progressive revenues applied in the ACT and, as such, is the fairest. The wealthier pay a greater contribution. However, the fairest of all the taxing system is the charges levied when there is a change of use on a particular lease. Where a lease has been purchased for a home and a developer wishes to build a set of units the value of the lease increases considerably. As the community is the landlord in this case, the improved value for allowing the variation to the lease belongs as part of community revenue. The report summarises the importance of this concept with: “There are good reasons to set the Lease Variation Charge at as high a rate as possible”.

This is an extensive report. There are issues for debate and the political reality is those most impacted in any negative way will have the loudest voices. However, in the words of the report “the relatively higher socio-economic profile of the ACT indicates capacity to support reform”.

Michael Moore was an independent member of the ACT Legislative Assembly (1989 to 2001) and was minister for health.

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Michael Moore
Michael Moore is a former member of the ACT Legislative Assembly and an independent minister for health in the Carnell government. He has been a political columnist with "CityNews" since 2006.

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