Saturday, March 25, 2006

Victoria must play role in tax reform

THE Commonwealth Games are nearly over. They have been well managed, great fun and the athletes have been magnificent.But have you ever wondered how the Government has been able to foot the very sizeable bill with almost effortless ease?

Well, Steve Bracks and his team have experienced one of the largest revenue windfalls in this State's history and they are actively spending it, including on the Games.
From 2000-01 to 2004-05, the Bracks Government received a revenue windfall of $17.6 billion, or a 20 per cent increase in expected revenue.

The main generator of this largesse has been the State's own taxes.
When the GST was first introduced in 2000, the tax cuts as part of the GST deal were expected to result in sharp cuts in state tax revenue. This was not expected to be recovered for at least seven years. The prediction turned out to be far off the mark. The economy boomed. The State's three growth taxes -- payroll tax, land tax and conveyancing fees -- pulled in money at a record rate. Total tax receipts were $7 billion or 18 per cent higher than expected over the past five years.

Then there was the GST. Over the first five years of its existence, revenue from the GST and other Commonwealth grants exceeded expectations by $4 billion.
In the main, the Bracks Government has done little more than maintain the status quo on tax and GST. It has twice, with great fanfare, announced tax cuts. However, these have been minor changes with little impact on revenue collections. And it inherited the GST deal and has met its commitments.

The Kennett Government undertook many reforms but did nothing on tax. It raised a number of non-business taxes to help reduce the budget deficit. It subsequently did not lower these or other taxes, so the Bracks Government inherited one of the most aggressive state tax systems.
As such, Steve Bracks has been able to do little while the money has rolled in at an increasing rate.

The Bracks Government, meanwhile, has increased receipted fees, fines and user charges by 25 per cent over the past five years. A small proportion of the revenue windfall -- $2.4 billion or 19 per cent -- has been spent on expanding the State's infrastructure base. The rest -- $15.2 billion -- has been consumed.

About a third of the windfall has been consumed on more and higher-paid staff including front-line staff. But for every additional teacher, nurse, doctor and police person hired, the Bracks Government has hired an additional bureaucrat. The remainder of the windfall has been consumed in an ongoing spending spree, including the Games.

Ron Walker has warned that we may suffer a bout of depression when the party is over. I suspect he is right.

(Mike Nahan: Herald Sun 25/3/06)

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