02/10/2013 - 14:30

CCI pushes state tax reform

02/10/2013 - 14:30

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Western Australia’s payroll tax system is one of the most onerous in the country, according to a review by the Chamber of Commerce and Industry, which has advocated major reform of transfer duties and payroll tax.

Western Australia’s payroll tax system is one of the most onerous in the country, according to a review by the Chamber of Commerce and Industry, which has advocated major reform of transfer duties and payroll tax.

In a submission to the Economic Regulation Authority, the CCI has mapped out a broad reform agenda for the state, including changes it believes will create a more efficient tax system.

“Now is the right time for the government to embark on a new agenda of economic reform to help get the State’s finances back on track and ensure WA is well placed to become more competitive and productive,” CCI chief economist John Nicolaou said. 

The CCI believes the state’s long-term goal should be abolition of both transfer duties and payroll tax.

Its submission described transfer duties as “highly inefficient and distortionary taxes as they are based on transactions and fail the basic principles of good tax design in that they are narrowly based and inefficient”.

The CCI was also highly critical of payroll tax, which it described as “a disincentive for business growth and job creation”.

In recommending reform, the CCI acknowledged the WA’s current reliance on transfer duties and payroll tax and has therefore detailed short-term measures to improve both taxes.

These include adjusting the transfer duty scales for residential and commercial property back to the levels that applied in the early 2000s.

That is because these rates have not been adjusted for the property boom of the mid-2000s, which lifted Perth’s median house price from $160,000 to about $500,000.

As a result, the median property in Perth is now subject to a rate of duty equal to 3.6 per cent of the purchase price (or $18,000) compared to 2.8 per cent (or $4,600) in 2000-01.

A model for long-term reform has been provided by the Australian Capital Territory, which has started a process for abolishing transfer duties over the coming decade.

The ACT government intends to use a broadly based land tax to generate offsetting revenue.

The CCI believes land tax is a relatively efficient tax, though it notes that the Metropolitan Region Improvement Tax means WA effectively has two kinds of land tax.

It recommended abolition of the MRIT levy.

In regard to payroll tax, WA has the second-highest rate (5.5 per cent) and the third-lowest exemption threshold ($750,000).

While the state government plans to lift the threshold to $850,000, CCI advocated a lift to $1.5 million.

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