In 2004-05, all states and territories will be better-off by a total of $1.6 billion as a result of the Australian Government’s tax reforms, with all states and territories receiving more revenue from the GST than they would have had if tax reform not been implemented. All GST revenue goes to the states and territories.
As the GST is a secure, growing and broad based revenue source, the states’ gain from tax reform is estimated to continue growing to over $2.9 billion by 2007-08. The additional revenue delivered through tax reform can be used by the states for essential community services such as hospitals, schools and police, and for the states to lower their tax burdens.
On the basis of the Budget estimates (see attached table from Budget Paper No.3), only New South Wales will require Budget Balancing Assistance in 2003-04. Budget Balancing Assistance is additional top-up funding provided by the Australian Government as part of its guarantee that no state or territory will be worse off in the transitional period after the introduction of tax reform. In total, the other states are estimated be ahead by in excess of $1.1 billion of additional funding in 2003-04 as a result of the Australian Government’s tax reforms.
With all states receiving GST revenue in excess of their Guaranteed Minimum Amount from 2004-05, the Australian Government will no longer be required to provide Budget Balancing Assistance. The transition period during which the Australian Government guarantees that no state will be worse off due to tax reform expires on 30 June 2006.
Removing more taxes
As agreed at the 26 March 2004 Ministerial Council meeting on Commonwealth-State Financial Relations, Bank Accounts Debits Tax is to be abolished by 1 July 2005. This means individuals and businesses will no longer be taxed every time they make a withdrawal from a bank account with a cheque drawing facility. This will save taxpayers around $1 billion in 2005-06.
This abolition continues the implementation of the reforms contained in the Intergovernmental Agreement on the Reform of Commonwealth State Financial Relation, which was signed by all Australian Government, state and territory leaders in 1999. Narrow and inefficient state taxes that have already been abolished include Financial Institutions Duty, stamp duty on quoted marketable securities, and accommodation taxes (bed taxes).
The Ministerial Council also agreed to a terms of reference for a review in 2005 of the need for the retention of the following stamp duties: leases; mortgages, debentures, bonds and other loan securities; credit arrangements, instalment purchase arrangements and rental arrangements; cheques, bills of exchange and promissory notes; non-residential conveyances; and non-quotable marketable securities.
As the GST revenue grows, it will be able to fund the removal of these state taxes.