Australian states to collect their own income tax

The Prime Minister’s plan to let states collect a portion of the income tax of workers income tax.

 The Prime Minister, Malcolm Turnbull has announced a plan to trade some of the income tax that is collected and exchanged for health and schools for the states to be able to collect that portion of the tax themselves.

The plan is to discount the federal income tax by a certain percentage (amounts of 2% have been hinted at by federal treasurer, Scott Morrison), and allow each state to collect that same amount directly from workers, stating that there would be no change to the amount of tax people paid at the moment, but states would be free to raise or lower their portion of income tax levied on workers as they see fit.

My first question is, what is the purpose of doing this if it makes no change to the amount of tax paid or revenue raised? The obvious first answer is that it makes no difference, therefore it’s not a problem. However, when you dig a bit further, the next most obvious answer is that the states would inevitably raise the tax rate to cover an ever increasing health industry cost or lower it to compete for workers and citizens with other states. But the health industry is not only what this money has to fund. It has to fund state schools as well.

What this will do is create a competition between states as to their tax rate and school and health spending. For example, the states will be squabbling over who has the best schools and lowest tax rate, enticing people to move interstate to achieve a lower tax rate and in effect have a higher wage, while the federal government is released to quietly go about its own secret agenda.

This begs another question – What will happen to the GST that is to be allocated back to the states?

So we will have the states raising their own income tax and keeping it, the federal government collecting its own income tax and the GST and then re-allocating the GST back to the states.

One last question – Are you kidding me?

Wouldn’t it be easier and less red tape to just let the states keep the GST they raise and hand the control of the GST over to each state respectively to do with it as they please? Or better still, maybe the Prime Minister could invent a better ‘Better Tax System’ than was created in 1999 when the then Liberal government brought in the GST.

Another suggestion (but not serious) is to let the states do all the collecting of money from the people and then the federal government could come begging the states for a hand out. The federal government would charge the states to act as its Federal representative and collect royalties accordingly. Then each state which is a sovereign state (other than territories which could be made into states) could set and collect their own taxes and pay the federal government to negotiate federal and international issues. It would certainly reduce duplication of departments and work done by state and federal governments. It would make state governments which are closer to the people, more responsible and accountable for their policies and revenue raising. Actually, the more I write about this, the better it sounds.

I digress.

Getting back to the states and the tax system. To quote Wikipedia,

“The tax [GST] was introduced by the Howard Government and commenced on 1 July 2000, replacing the previous federal wholesale sales tax system and designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty.”

The end result of implementing this new income tax system is to duplicate the tax department in each state and increasing the overall government spending of all levels of government in Australia. This is directly contrary to ex-Prime Minister, Tony Abbott’s record of cutting red tape by $2.1 Billion in 2014 according to a report published in The Australian on October 22, 2014.

Nobody in the mainstream media has brought up this point about the GST, which is interesting in itself. It just begs the question, “Why not?” “Is the mainstream media only reporting what they are told to by some higher authority?”

Darryl Bothe

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