This is a pretty big reform. Prime Minister Malcolm Turnbull confirmed today that a radical proposal to allow Australian states and territories to levy income taxes is absolutely on the table – a change from the current situation, where only the Federal Government receives income tax.
Essentially, the Federal Government would lower the amount of income tax it takes in, allowing the states to develop their own rates in order to offset that loss of revenue. It’s a little like it is in the United States of America, actually: where states compete against one another for lowest tax rates, to encourage business and so on. It’s called ‘competitive federalism’ and Australia’s states & territories have generally not pursued it in any huge way.
“There is a failure at the heart of the federation and this is the failure,” Mr Turnbull told reporters. He says this proposal will give states autonomy and let them be the master of their own financial destinies, rather than relying on federal grants.
Opposition Leader Bill Shorten hit back at the Government’s plans, saying that he could “guarantee Australians a Labor government will not give income tax powers to state and territory governments.” He contends that it’s a band-aid solution to the hole in funding caused by Liberal cuts to health and education.
This proposal will be further discussed at Friday’s Council of Australian Government’s (COAG) meeting.
Source: ABC News.
Photo: Getty Images / Stefan Postles.