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Payroll tax, stamp duty reform hopes dashed by federal government

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Victorian Treasurer Tim Pallas on Friday said the state could go it alone on stamp duty reform if it had federal support while NSW is considering its own changes that might need Commonwealth assistance.

In their latest mid-year budget updates, the states and territories were on track to collect $27 billion from payroll tax, or almost half the amount they share in GST revenue. Stamp duties on property, insurance and vehicles account for 30 per cent of the self-raised taxes of NSW, Victoria and Queensland. Payroll tax is more than a third.

Treasurer Josh Frydenberg, who has backed cuts to payroll tax and an overhaul of state tax systems, on Wednesday ruled out providing any direct federal government help.

“I … understand the motivations around stamp duty and land tax but also states have got their own balance sheets, they’re going to have to make their own choices,” he said.

“It’s a discussion that we continue to have at the CFFR [Council of Federal Financial Relations] level about broader reforms, but I would say to the states that they’re also going to have to find within their own balance sheets the ability to fund any reforms that they put a priority on.”

The NSW government estimates $9.8 billion of revenue will flow into state coffers from payroll tax in 2019-20, out of a total $32.5 billion in state taxes collected. This is set to rise to $11.2 billion out of $38.1 billion by 2022-23.

In Victoria, payroll tax is forecast to make up $6.6 billion of $24.4 billion of total state taxes this year. In Queensland, payroll tax is worth $4.3 billion out of the $15.2 billion tax collected, and in Western Australia it is $3.8 billion out of $9 billion in revenue.

A senior member of the CFFR committee, which includes all the nation’s treasurers, said it was “simply not on the radar of any state to get rid of payroll tax”.

All states and territories are facing budget deficits due to the coronavirus pandemic and a long-term revenue hit due to high levels of unemployment, slow wage growth and low levels of property sales.

“There is simply no revenue to cover such an important tax,” the source said, speaking on condition of anonymity. “If we were designing a tax system for a new state you wouldn’t have payroll tax. But there’s no way we can replace such an important piece of revenue.”

There is simply no revenue to cover such an important tax.

The Henry Tax Review, released in 2010, found payroll tax was one of the nation’s most inefficient taxes. Every dollar of payroll tax caused a welfare loss to the broader economy of 40 cents. It backed the introduction of a broad-based cash-flow tax that would raise enough money to cover the revenue lost by axing payroll tax and other imposts such as taxes on insurance.

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