Ms FORREST asked a question of the Leader of the Government in the Legislative Council -
Further to a response from the Leader on 23 June 2015 in answer to a question concerning the Commonwealth Grants Commission - CGC - and Tasmania's tax raising ability the Leader stated 'the Commonwealth Grants Commission assessment of our revenue capacity for payroll tax is based on applying the national average policy to our actual payroll tax base' -
(1) (a) Are these assessments based on past actuals, the latest being the 2013-14 year, on a per capita basis as a percentage of the national average; and
(b) if so, how does the budgeted revenue for payroll tax as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total expected taxable payrolls in Tasmania for 2015-16?
(2) (a) How does the budgeted revenue for land tax as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total expected taxable land in Tasmania for 2015-16?
(b) How does the budgeted revenue for stamp duty as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total transactions that attract stamp duty expected in Tasmania for 2015-16?
(c) How does the budgeted revenue for insurance tax as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total expected taxable insurance premiums in Tasmania for 2015-16?
(d) How does the budgeted revenue for motor tax as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total expected taxable related transactions in Tasmania for 2015-16?
(e) How does the budgeted revenue for mining royalties as per the 2015-16 Budget compare to the expected figure derived from applying the CGC percentage figure to total expected mining royalty payments for Tasmania for 2015-16.
The answer read as follows:
Background
The Commonwealth Grants Commission - CGC - is an independent statutory body tasked with recommending annual GST relativity factors which reflect the principle of horizontal fiscal equalisation - HFE. That is:
State governments should receive funding from the pool of GST revenue such that, after allowing for material factors affecting revenues and expenditures, each would have the fiscal capacity to provide services and the associated infrastructure at the same standard, if each made the same effort to raise revenue from its own sources and operated at the same level of efficiency.
To give effect to the HFE principle, the CGC makes a comprehensive comparative assessment of each state's fiscal circumstances, taking into account:
• the revenue that would be available to a state if it were to apply the notional national average tax policy to its own source revenue base (both as calculated by the CGC);
• the non-policy related advantages and disadvantages (for example, geographical, demographic) it would face in delivering the average notional level of services to its state population; and
• the support it receives through Commonwealth grants.
The service expenditure and revenue capacities developed by the CGC are purely notional. They do not prescribe objectives which states are expected to attain, or measure an 'efficient' level of expenditure, service delivery, or taxation.
These assessments are not observable measures, but constructs made by the CGC solely for its purposes of determining relativity factors. In determining relativities for 2015-16, the GCG generates a three-year average based on assessments for the years 2011-12, 2012-13 and 2013-14 to smooth out fluctuations.
The CGC's methods are designed to ensure that its assessments are policy neutral. Individual states' policy choices (either on expenditure or revenue raising) do not influence the distribution of GST. For example, the CGC's methods ensure that a state is not penalised for engaging in tax reform. A state could lower its tax-free threshold, thus raising additional tax, without suffering a corresponding reduction in GST revenue.
The CGC achieves this policy neutrality by applying notional national average policies to each state's circumstances. In effect, the CGC applies a notional national average tax rate (derived by dividing national tax revenue by the value of the national tax base) to each state's standardised tax base.
Tax bases are either based on the actual tax bases used by states in raising revenue, or a proxy. Tax bases are standardised so as to reflect average policy. Examples of adjustments applied to the land tax base include the application of progressive rates of tax, an average tax‑free threshold, standardised exemptions (for example, principal place of residence and primary production land) and aggregation of property holdings for land tax.
Revenue assessments each follow a broadly similar structure.
(1) (a) The CGC's revenue assessments are based on past actual tax receipts and tax bases, except where data is not available or fit-for-purpose, in which case a proxy is used. The most recent revenue data that the CGC takes into account is for 2013-14, as this is the most recent financial year available at the time it makes its assessments.
In the case of payroll tax, the CGC uses data on actual tax receipts, and a proxy to estimate states' payroll tax bases.
Complete data on states' payroll tax bases is not available from the states. States generally do not collect data from employers whose payrolls are below their respective tax‑free thresholds (employers are not required to submit payroll tax returns if their taxable wages do not exceed the threshold). Tax‑free thresholds in 2013-14 ranged between $550 000 in Victoria and $1.75m in the Australian Capital Territory. Using state payroll tax data would result in an incomplete dataset from which to generate tax bases that reflect national average policy.
Instead, the CGC uses Australian Bureau of Statistics national accounts data on compensation of employees - CoE - and additional data on wages and salaries by sector to derive a policy neutral standardised taxable base for each state.
CoE is a broad measure of remuneration paid, covering wages, salaries, other cash benefits on behalf of employees (such as superannuation) and non-cash benefits.
The CoE data is adjusted to remove remuneration to general government employees (as these are universally exempted from payroll tax), and payrolls below an average threshold.
For the 2013-14 year, the CGC calculated a national notional average tax rate of 4.8 per cent by dividing the total of the states' payroll tax collections by its notional calculation of total national taxable wages.
By applying the average tax rate of 4.8 per cent to Tasmania's standardised taxable wages, the CGC assessed that Tasmania's payroll tax revenue raising capacity in 2013-14 was $268 million or $521 per capita. This compares to that national average of $911 per capita.
This assessment does not indicate how much payroll tax Tasmania 'should' have raised in 2013‑14, it indicates that the CGC estimates that with the wages information available to it, applying a notional national average tax‑free threshold and a notional national average tax rate, Tasmania would have been theoretically able to raise substantially less payroll tax than the national average.
The CGC publishes tables of each state's assessed revenue raising capacity and assessed revenue raising effort for each of the assessment years 2011-12, 2012-13 and 2013-14. The assessed revenue raising capacity ratio of a state is the ratio of the state's assessed revenue per capita to the Australian average revenue per capita. The assessed revenue raising effort ratio of a State is the ratio of the State's actual revenue per capita to its assessed revenue per capita. These ratios do not, in themselves, play a part in the CGC's relativity calculations and are not a core outcome of the CGC's methodology.
Tasmania's revenue raising capacity is less than the national average for all taxes except motor tax (where Tasmanians own more light vehicles per capita than the national average). Tasmania's total revenue raising capacity per capita for 2013-14 is 73.1 per cent of the national average.
(1) (b) Tasmania's budgeted payroll tax revenue for 2015-16 is $321.5 million. Treasury's payroll tax forecasting methodology does not estimate Tasmania's future payroll tax bases, rather the methodology examines historical trends in total payroll tax collected and uses forecasts of total employment and average weekly earnings to generate estimates of payroll tax revenues over the budget and forward Estimates period.
The CGC and the ABS also do not forecast payroll tax bases for 2015-16.
It is therefore not possible to apply the CGC's assessment of Tasmania's 2013-14 payroll tax capacity to Tasmania's 2015-16 payroll tax base. Even if an estimate of the tax base did exist, the CGC's assessment of Tasmania's payroll tax capacity in 2013-14 is not constructed from Tasmania's actual tax base in 2013-14, rather (as outlined above) it is constructed from the CGC's estimate of that tax base developed from ABS datasets. It is not possible for Treasury to replicate the CGC's method, because the data to do so does not yet exist for 2015-16.
Applying the CGC's 2013-14 assessment to Tasmania's 2015-16 circumstances would not result in a meaningful estimate of Tasmania's payroll tax capacity in 2015-16, nor is it likely to reflect the CGC's eventual assessment of Tasmania's payroll tax capacity in 2015‑16. The final data for 2015-16 will be available in 2016-17 and will form the basis for the assessment published in the CGC's 2017 Update Report.
(2) (a) to (e)
For the reasons outlined above in the answer to 1(b), it is neither possible nor meaningful to apply the CGC's assessments of Tasmania's revenue raising capacity per tax line to 2015-16 tax bases for:
• land;
• conveyance duty transactions;
• insurance premiums
• motor vehicle ownership and transfers; and
• mineral royalties.
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