NCPA - National Center for Policy Analysis


November 4, 2009

Australia's tax system needs principles that go beyond efficiency, equity and simplicity, says Robert Carling, Senior Fellow at the Center for Independent Study.  For example, he recommends that taxing powers should be allocated between Commonwealth, state and local governments according to principles of fiscal federalism:

  • Taxes over which the Commonwealth has policy control generates 85 percent of national tax revenue, while states and local governments control the other 15 percent.
  • With expenditure responsibilities much more evenly distributed, it means that revenue and expenditure at each level of government can only be balanced through large-scale transfers of tax revenue from the Commonwealth to the states and local governments.

Carling recommends three criteria for tax assignment:

  • The allocation of powers should equip each level of government with the capacity to finance its own expenditure responsibilities; taxing powers need to be decentralized to a similar degree to expenditure responsibilities so that each government can set its own policies.
  • Each level of government should be allocated the kinds of taxes most suitable to them; the more mobile tax bases such as labor should be reserved for the Commonwealth while the less mobile bases such as property are allocate to the states and local governments.
  • Each tax base should be taxed by just one tier of government; where it is not possible, the separate taxes of each level of government should be made clear to the taxpayer.

Source: Robert Carling, "Taxing Powers Should Be Allocated Between Commonwealth, State and Local Governments According to Principles of Fiscal Federalism," Policy, November 29, 2009.


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