
As I was finalising another Election Update, this time about where we go once the umpire mercifully calls time on this largely pointless election campaign, Richard Ecclestone from UTAS’ Tasmanian Policy Exchange set out his thoughts on the same subject (Op ed in The Mercury 16th July ).
It’s as if he stole the words right off the end of my pen. He said:
“We should, however, start discussing the process and principles for supporting an informed debate about budget repair and other long-term priorities after the election of whoever forms government. Labor’s commitment to establishing a budget roundtable is a step in the right direction but we could go further.
We should establish a budget review process whereby all parties and members of parliament contribute to developing a clear roadmap for returning the state to financial sustainability. If parliament is at the centre of the process it can be conducted in an open and transparent way. Advice from Treasury and other experts can be assessed and scrutinised and stakeholders and members of the Tasmanian community can also have their say.
The aim of a multi-party budget review isn’t to set the annual budget, which will always be the role of the executive. Instead, it should establish broad budget priorities and parameters for the next parliament. A review would inform the public and MPs alike and ideally help establish a political consensus about a path to budget sustainability.
Political parties will and should disagree about specific policies and spending priorities but doing this within an agreed framework will lead to better outcomes. Most importantly, in the likely event of a minority or partnership government, an agreed budget framework will provide greater and much-needed political certainty and stability in otherwise challenging times.”
With a minority government all but certain it will take a few weeks to decide which side of the House members will sit, and then to reestablish all the committees that were abandoned to allow for this costly campaign of folly.
Most of the remainder of the year will be taken up with passing a 2025/26 Budget as the Supply Bills passed as a stopgap measure will expire by the end of this calendar year.
Time won’t permit a multi-party budget review doing much before the 2025/26 Budget but it should certainly be an absolute priority before the 2026/27 Budget whether that will occur at the traditional time in late May 2026 or will be delayed because of the current shenanigans.
We need to set deadlines, or perhaps better described as milestones which we need to reach in a reasonable time before proceeding towards our agreed destination.
We need to agree on a fiscal path, what level of revenue and expenses is sustainable? Quite clearly the gap between the two will have to close. What is the contribution to be made by expense control and what is to be made by more revenue? Unbundle what’s needed and work out timelines to achieve targets. Set up performance measures and monitoring protocols. Agree on how we deliver the services we rely on to ensure those in need are provided with the things they need in an equitable society.
We will need to avoid specific policies before agreeing a general framework. Prof Ecclestone reminded us:
“In 2010, the Giddings government established a multi-party review of state taxation to build consensus for much-needed state tax reform. Despite good intentions the process broke down at the first hint of increasing some taxes to abolish others.”
Having been a Member of that Panel, I appreciate the political difficulty this sort of work presents, however it is work that must be done in a non-partisan and collaborative way. But, before we can start even talking about what specific taxes may offer revenue raising possibilities, we need consensus as to what constitutes an efficient and a fair tax. There are some who will maintain until last rites are administered that the best taxes are the lowest ones.
Any attendee at a budget roundtable should come along with an open mind and with draft answers to the perennial but crucial questions – what are the characteristics of an efficient tax? And – this is easier—what does fairness mean when applied to taxation? And finally – if you had to raise an extra, say $100 million pa, which tax would you choose which best satisfies the efficiency and fairness criteria you’ve just established?
A better understanding of basic tax theory is needed. For instance, he/she who pays the tax is not necessarily the person who carries the burden. Woolworths might pay a lot of GST but it’s shoppers who carry most of the burden. All taxes are different. Even payroll tax which is paid by employers. Over time there is evidence this gets shifted to employees via different wage outcomes.
If you read the 2010 Henry report, a payroll tax is classed as a consumption tax, because in theory that’s what it is. If levied on all labour income not just large employers it becomes a pre-consumption tax, with the burden falling on everyone in receipt of income from labour, as distinct from GST which is borne by all people who spend.
Then there’s the question of a narrow base vs a broad base. This is relevant with payroll taxes. Is it fair to have a narrow base as payroll tax does?
States however are ill equipped to raise taxes on all labour income. Payroll taxes have become narrow inefficient and much maligned taxes ever since the McMahon government transferred payroll tax collections to the States in 1971.
Payroll taxes, by far the largest of State taxes, could be used as a fairer more efficient tax by securing an agreement with the Commonwealth to share the same tax base (the Commonwealth collects tax from individuals using a similar base) and for the Commonwealth to collect the tax on the State’s behalf. I’m not prescribing it as a solution, rather showing how tax base sharing should be considered as part of tax reform.
Some taxes have a mobile base others like land and resource taxes are levied on an immobile base which make them more suitable for State taxes, as distinct from say gambling taxes which for a brief period all shifted to the Northern Territory because it could raise a lot of money with a low rate from a highly mobile tax base.
Any discussion of efficient and fair taxes needs to be seen in the context of taxation in total across all jurisdictions. The 2010 Henry Report talked about a sound tax system being constructed with four pillars: personal income, business income, private consumption, and economic rents from natural resources and land.
We need to be cognizant of what the Feds can do and should do and what part we should be playing.
The tasks ahead for the next parliament will be challenging. But there is light at the end of the tunnel although precious time is gradually running out. I urge all those elected to agree to respond to this pressing issue with open minds, willingness to think differently and to work collaboratively and respectfully. This is the way to success.