Policy on Revenue
State Governments in Australia are not getting enough money to pay for such essential services as hospitals, the police and schools. At the same time, the overall taxes that Australians are paying are considerably lower than they were back in the 1970s before Whitlam and Hawke came to power. It therefore makes sense for State Governments to increase taxes so that the overall taxes are back to the level that people paid in the 1970s.
The Labor Party during and after the Second World War enacted laws to discourage State Governments from imposing their own income tax. Taxpayers were banned from paying the State income tax for the year until they had paid the Commonwealth income tax for the same year. This prevented a State Government from having a “Pay As You Go” system. Also, State Governments would lose their Commonwealth Government grant if they imposed an income tax.
States can still impose income tax. A State Government can enact a law that employers have to withhold part of an employee’s pay and put it in a bank account where it will be used for paying State and Commonwealth taxes. Then, at the end of the financial year, when the employee gets a notice of assessment from the Commissioner of Taxation, and the employee’s Commonwealth income tax has been paid, the State Government can help itself to the money.
This will have the disadvantage that the State Government will miss out on Commonwealth grants. This should be thought of as one of the disadvantages of having the Labor Party or the Liberal Party running the Commonwealth Government. On the whole, however, the people of a State will be better off if the State Government imposes a State income tax, and has enough money to provide adequate services.
It might seem that, if people are paying a State income tax, they will move to another State. But that will depend on how the State Government spends the money. If people have better health care, less crime and better schools, they will stay where they are. Australians have the option of moving to the United Arab Emirates and paying no income tax at all, but people do not move there to any great extent. Nor will people move to another State to any great extent if we introduce a State income tax.
It might seem that it would be political suicide for a party to advocate greatly increased taxes. We think that people understand that governments cannot magically make money out of thin air, or irresponsibly borrow money. The level of taxation that we are proposing is reasonable. We have had that level in the past. When we had that level of taxation in the past, our country was very prosperous.