Unformatted text preview: x has now become a totally Federal tax.
Had the States retained tobacco taxes, they would over the transitional period probably have increased the tobacco tax
rate. The ability to raise the rate exists because the price elasticity of demand for tobacco is low, so that tax increases
will not produce a decline in revenue. The motive to raise the rate exists because of the need to reduce the social costs
of smoking (see Collins and Lapsley, 1996). It does not appear that calculation of GMAs takes into account these types
of tax policy options which the States would have had under the pre-IGA arrangements. This is an illustration of the
effects of the increase in vertical fiscal imbalance, which is the subject of Chapter 5.
Similar issues arise in relation to alcohol taxation which was significantly increased in the 2000-01 Federal Budget.
Should the States notionally receive some of this revenue increase through an upward adjustment of their GMAs?
It should be noted that if, as a result of a 2005 Ministerial Council review, other taxes are abolished, a further transitional
period, with its attendant implications, would be established. It is not, however, clear how the abolition of further State
taxes could be funded unless there was an increase in the GST rate. Since at least one, and probably several, States
could be expected to veto such an increase, the abolition of further State taxes would be unlikely to proceed unless the
Federal Government broke the Intergovernmental Agreement. This is, of course, not impossible. 4.2. Tax Efficiency
The concept of tax efficiency relates to the requirement that the tax system should not distort more than absolutely
necessary what would otherwise be efficient business decisions. To quote the Asprey Committee (Taxation Review
Committee, 1975.p.16), the tax system “should not alter the relative returns from different modes of investment; it should
not alter the relative attractiveness of different types of business organisations, or the relative prices of productive
resources; and it should not discriminate between different types of production”.
A major objective of the ANTS package was the replacement of various inefficient taxes with a broad-based, single rate
consumption tax – an admirable objective. At the State level the taxes to be abolished were, in the main, a broad range
of financial taxes which were seen as being discriminatory; vulnerable to avoidance, evasion and inter-State tax
competition; and having high administrative and compliance costs. 128 Commission on Fiscal Imbalance Under the original ANTS proposal the following State taxes were to be abolished:
♦ Financial Institutions Duty;
Stamp duties on marketable securities;
Conveyancing duties on business property;
Stamp duties on credit arrangements, instalment purchase arrangements and rental (hiring) agreements;
Stamp duties on leases;
Stamp duties on mortgages, bonds, debentures and other loan securities;
Stamp duties on cheques, bills of exchange and promissory notes; and
Bed taxes. As a result of the GST revenue loss arising from the Democrat Amendments, the range of financial t...
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