One way of examining Western Australia’s record on tax is to compare overall business taxing level here to regimes in other states.
One way of examining Western Australia’s record on tax is to compare overall business taxing level here to regimes in other states.
Significantly, Treasury this year adopted a new measure of taxing load that makes the current State Government’s taxing record appear more palatable.
The Labor Party’s January 2001 financial management policy statement said it would seek to create an equitable taxation and charges environment that provides incentives and a competitive advantage to Western Australians.
“Labor will ensure that state taxes and charges are competitive with the other states to assist in attracting business to WA and enable existing businesses to flourish,” it said.
Unfortunately, that’s proven to be a fanciful assertion, like Premier Geoff Gallop’s January 2001 claim that he wouldn’t increase taxes.
The Government’s first budget of 2001-02 showed WA as the third highest taxing state, after NSW and Victoria, when general taxation revenue per capita was compared.
And WA was below the weighted average for the six states that year.
It’s important to note WA has a smaller taxing take from gambling than other states, which rely so much on gambling revenue, primarily poker machines.
WA remained at the third taxing rank for 2002-03.
The turnaround came for 2003-04 when it passed Victoria to be the second highest per capita taxing state, even though WA’s gambling tax revenues were far lower.
Moreover, WA’s taxing level for 2003-04 came in above the weighted average for the six states.
Interestingly, the Treasury’s budget papers for 2003-04 blamed the state’s booming economy for this, not the Government’s policy of boosting taxes.
On page 24 of the 2003-04 Budget’s Financial Results Report it said: “The increase in WA’s taxation revenue per capita relative to the 2003-04 budget estimate is due to stronger than expected levels of economic activity, which increased the revenue collected from a number of state tax bases.”
This, of course, ignored the fact that tax rates had been boosted over three successive years.
However, according to the latest budget papers, WA in 2004-05 is shown to again be in third spot, after NSW and Victoria, and below the six-state weighted average.
However, the other states’ tax levels were derived from “estimates of taxation … based on their 2003-04 mid-year reviews”.
In other words they’re not of actual per capita levels, meaning we must wait for the actual figures before a final judgement of WA’s relative per capital taxation performance can be made.
But with the arrival of 2005-06 the story becomes more interesting.
This year’s budget papers have Treasury abandoning use of the long-standing taxation revenue per capita measure of tax burden upon business.
Instead it has devised a measure called ‘tax revenue as a share of GSP’, with GSP being, gross state product.
However, WA business, through the well-qualified staff of its peak body, the Chamber of Commerce and Industry (CCI), cannot be bluffed by such a ploy.
Unfortunately for Treasury’s inventive boffins the CCI’s new director is former Treasury chief, John Langoulant, and his senior economist, John Nicolaou, is also from Treasury.
Both consider this change of measures as being disingenuous.
And if the matter weren’t so serious one suspect they’d have a good chuckle since they see it as akin to changing the LBW rule as one goes in to bat.
Treasury explained its new measure of the burden of tax thus: “The Government recognises the need to maintain a competitive tax environment.
“The target has been changed to measure tax competitiveness on tax revenue as a share of GSP; relative to the average level in other states (the previous target was to maintain WA’s rank in terms of tax revenue per capita).
“The new basis for calculating this target provides a more stable measure of tax competitiveness, and one which better reflects the impact of government policy – the previous tax competitiveness target was sensitive to the impact of economic growth which can distort any assessment of the relative impact of states’ taxing policies.”
Thereafter a table shows taxation revenues as a share of GSP for four future financial years – between 2005 and 2009 – and, not surprisingly, each year has WA below the “weighted average of other States”.
What the latest budget papers have therefore deliberately expunged is the long-used table showing WA’s tax revenue per capita position in relation to other states, a highly suspicious move, to say the least.
Furthermore, not only was the measure of tax burden changed but the estimated tax levels shown for the years until 2009 are worthless since they are simply Treasury’s guesstimates, not actual figures.
Not only does the CCI’s Langoulant-Nicolaou team reject this ploy, but they’ve devised their own measure to show the real impact of the Gallop Government’s taxes exclusively upon the state’s business sector.
Of Treasury’s new GSP measure they said: “CCI does not support the Government’s decision to measure taxation competitiveness as a percentage of GSP.
“Thanks to WA’s resources and export focus, its GSP growth is extremely volatile, affected by factors such as commodity prices and world demand.
“Capping taxes as a percentage of GSP would be chasing a moving target.
“Growth in the key drivers of GSP (consumption, business investment and exports) does not often correspond closely to growth in the key components of the state’s tax base (payrolls, property values and transactions).
“Nor does it bear any relation to the needs that taxes are required to finance, namely government services and investment.
“Finally, the capacity of the WA economy to maintain strong growth depends crucially on the health and competitiveness of the business sector.
“Rather than taxes being allowed to rise to match economic growth, they should be contained at a level that does not impede it.
“This demands that WA’s tax regime is competitive with other states.”
The CCI next contends that a true measure of tax burden comes only by excluding from total government revenue all gambling taxes, since companies don’t gamble and therefore do not contribute to that revenue source.
When carrying out such a exercise the CCI’s tables show WA in 2003-04 being far and way the biggest taxing state – even above NSW and well above the weighted average for the six states.
And in 2004-05 WA came in as the second highest taxing state, after NSW, but again above the average for states.
Until Treasury boffins can answer that comparing only business taxes on a per capita basis is erroneous they’ll have to concede that the CCI has a point, and that the Labor’s January 2001 financial management policy claim that it would ensure WA remained tax competitive has gone the same way as Dr Gallop’s promise not to increase taxes.
