Must try harder

The most important single point in the Queensland Commission of Audit report (not a new one) is that Queensland is attempting to deliver the same services as the other states with a lower “tax effort”. To see what this means, let’s look at payroll tax which is both the biggest and (at least in principle, and with the exception of land tax) the least distorting tax available to state governments. The states were given the right to collect payroll tax back in the 1970s, in the hope that it would provide them with a tax base growing in line with the economy, and free them from dependence on the Commonwealth. It was never going to be enough, but the states made things worse by competing to provide exemptions, higher thresholds and so on, with the result that the tax collects less, and distorts more than it should. Unsurprisingly, Queensland has been the leader in this field. We have a payroll tax threshold of $1.0 million, about twice the level prevailing in other states, and a rate of 4.75 which is the lowest of any state. The LNP has promised a further increase in the threshold to $1.6 million.

The tax currently raises a bit under $4 billion, so raising the rate to 5 per cent would yield around $200 million a year. No one likes paying more tax, and a payroll tax is a tax on jobs[1], so raising the rate isn’t a step that should be taken lightly. Still, it seems clear that any job losses from a higher tax rate would be far less than those now under way. There are currently about 20 000 Queensland firms liable for payroll tax, and the average bill would increase by $10 000 a year. Perhaps some firms might respond by laying off an employee or not filling a vacancy, but surely most would not (and hardly any would lay off more than one. Cutting the threshold to $800 000, still much more generous than other states, would also raise $200 million a year.

If Newman took his hyperbolic rhetoric about a debt crisis seriously, the least he could do is ask his own supporters in medium-sized and big business to share some of the burden of fixing the problem, while still getting a better deal than anywhere else in Australia. Disregarding this rhetoric, we ought to have a serious discussion of whether the benefits of payroll tax concessions are sufficient to justify the lower standard of health, education, police services and so on now being imposed upon us.

fn1. The theory of tax incidence shows that, in equilibrium, a payroll tax is the same as a consumption tax, since both fall, in the end, on labour income. I’ve never been sure how much weight I should place on this result.

39 thoughts on “Must try harder

  1. Note the lack of any real attempt on Terje’s part to positively participate in a discussion or contribute anything useful. Any theories about why he hangs around here putting himself and his silly ideas forward? Does he really not understand that his ideas have been trashed over and over by evidence and coherent argument and yet he still pops up with patronising and kindergarden level comments; to show that he is an interesting person with something interesting, if not intelligent, to say.

    There seems to be a sort of inherent arrogance among those types of people who become disciples of the libertarian project; like Gina thinking she is a poet and Murdoch thinks he can do haiku – well I spose he is married to an asian and that is enough for these superior types of human to be able to do it themselves.

    Fran, Terje will not be deterred by facts and rational argument; he is one of those types of human who are ‘masters of their destiny’ and that makes them – in their judgement – worthy of all the preferential treatment that they can manage to impose on the rest of us who are silly enough not to want to master our destiny through taking advantage of other people with fewer advantages.

  2. Julie – why are you making me the topic? That’s a rhetorical question by the way. Commentary on other participants usually derails things so you really ought to avoid it. I could spend the next three pages discussing me but I already know about me and I doubt the rest of the readers are particularily interested. I think you should stick to the topic of the article and play the ball not the man. The topic is the shocking revelation that the Queensland government is trying to provide services cheaper than in other states.

  3. @TerjeP

    The topic is the shocking revelation that the Queensland government is trying to provide services cheaper than in other states.

    Actually, in the balance between delivering services and raising less revenue they are simply privileging the latter over the former regardless of the warrant for the services and the probability that these services will simply not be provided by non-state actors or provided by some combination of state and non-state actors at radically lower efficacy.

    In order to hide that reality, they are pretending that their hand has been forced by resource scarcity or that the efficacy of their remaining spending may be better and you it seems, are in your own modest way, endorsing this dissembling out of cultural solidarity with the idea of lesser government.

  4. Really Terje?

    First you are not actually my topic; but with your ego you won’t understand that. I’m not bothered by any ethical concerns about your mental health, you have shown yourself to be very resilient and quite immune to insult although you are pretty good at handing them out. Will I link to the quite irrational, personal and insulting comments you made to me at Club Troppo?

    Yes it is not enlightened or kind for me to use you as a classic example of the ‘type’ of person and the holder of beliefs, that I see as the problem. I think your type of person has probably been a problem for the rest of us since agriculture was institutionalised and inequality of the iniquitous kind began to flourish.

    Derailing threads huh? I think you started the derailing lol by inserting your personal preference for paying less tax, as if anyone was in any doubt about what you want. Did you think that was the topic? Terje doesn’t like paying tax.

    Oh yes you could talk for pages about yourself, I have no doubt about that. ROFL. I bet you do when you have a captive audience. You love to pontificate eh?

    Maybe I’m indulging in payback Terje, I have a voice now – yay for the internet – and can defend myself and the people like me who need government services to survive in the toxic environment that the neo-liberal agenda has created in this country.

    I actually think that it is my duty to attack your ideas and your hubris so as to defend myself. Perhaps it has to be a war between you and your kind and me and my kind?

    Something has to give when providing services cheaper and you didn’t offer any ideas or questions about what some of us have to go without so that you don’t have to pay tax. For you it’s just a waste of money providing any services for people so what have you to offer?

    You just repeat the old mantra “I don’t want to pay any tax, it’s my money, I worked hard for it and I’m keeping as much as possible and bugger the country and it’s less able people; they aren’t worth anything anyway.

    But you know I believe, and that is based on my actual experience of working with dysfunctional people, that these people would be able contribute if they were given support and a chance to choose a ‘destiny’.

    The topic is all about the ‘shocking’ – lordy not shocking at all – quite predictable really – actions of a man we all knew – well anyone who heard the stories about his personality issues – inadequate for the task – why even the Courier Mail is giving him stick and when your allies start to criticise you, this early in the piece, you are in trouble.

    There was an outside chance that they would behave decently when given this chance after so many years of wandering in the wilderness, where they belonged, and they have blown it.

    My conservative regional neighbours – who mostly voted for Katter lol – are not happy with him either and the more he reduces regional services the more we will all be happy to get rid of him next time.

    But okay Terje I’ll leave you alone if you can’t take criticism.

  5. Will I link to the quite irrational, personal and insulting comments you made to me at Club Troppo?

    If you are going to reference alledged insults, as you just did, then it would be good if you provided a link. I think you are taking a personal tone that is quite uncalled for. As I said already you should try and stick to the topic.

  6. Actually, in the balance between delivering services and raising less revenue they are simply privileging the latter over the former regardless of the warrant for the services and the probability that these services will simply not be provided by non-state actors or provided by some combination of state and non-state actors at radically lower efficacy.

    I didn’t think they had lowered tax revenue. However I am not a Queenslander and so I might have missed something. I thought they were trying to close the budget deficit (ie reduce borrowing).

  7. I think the germane point is that Queensland is trying to deliver equal public services for less money than the other states and it is failing.

    Low tax, low regulation regimes don’t work well and they don’t deliver good social outcomes. Such regimes lead to high levels of inequality, monopolist or oligopolist domination, high crime rates, high incarceration rates, low levels of public health and disastrously high unemployment rates. Just look at the way Spain and Greece are heading as low taxes and low services are implemented. The evidence is clear on this and most people in Australia can see it.

    The extreme low tax position of the TerjePs of this world gain no traction in Australia and they never will. It is a minority outlier position in Australia. I wouldn’t get too steamed up about TerjeP’s views.

  8. I think the germane point is that Queensland is trying to deliver equal public services for less money than the other states and it is failing.

    I live in Sydney. I’ve only spent a little time in Brisbane. However the notion that Queensland is failing in the provision of public services seems over the top. The roads seem better in Queensland. Public transport was good. I can’t really comment on schools or hospitals on the basis of first hand experience but based on outcomes are they really inferior to NSW?

  9. Thanks Iconoclast

    “The extreme low tax position of the TerjePs of this world gain no traction in Australia and they never will. It is a minority outlier position in Australia. I wouldn’t get too steamed up about TerjeP’s views.”

    Sorry I was indulging my own desire to get steamed up and it’s Saturday!a Over it now : ) Terje is probably the most ‘intelligent’ of them and here I am indulging myself by trying to slap him around some, rather than encouraging him to keep thinking outside the box he is in. Silly me.

  10. @TerjeP The point isn’t that services are worse – it’s that they cost about the same. The real failure has been in the attempt to finance them while keeping taxes low. That worked as long as there were windfall gains from the real estate boom, but not in the long run.

  11. I agree that government services should generally be paid for out of taxes or service charges rather than government debt. Assuming that is the crux of the point. If you can’t pay for it out of revenue and service charges then ultimately you should reduce services, deliver the same services more efficiently or increase taxes. However whether you prefer the former or later is in part a judgment about which services matter and which the government should be involved in.

  12. I’m struggling with the “reduced taxation” part. Perhaps it is in the terminology? There has certainly been an outbreak of various fees, charges etc. under the previous government, then little to no indication that the new government will be doing anything to reduce the overall grab from the public. In fact all signs are they’re investigating ways to increase the amount confiscated from us.

    Payroll tax certainly has a downward impact on wages & jobs. Payroll tax costs two jobs at my place, and puts a cap on salary for key employees. There is no way to avoid this, not while payroll tax exists.

    It is most galling to see the state govt. give payroll tax concessions to others, mostly employers who will bring little to Qld, and who have no particular affinity with the place.
    Those of us who are Queenslanders, & who won’t be removing their jobs from the state, are particularly aggrieved by to see this.

    Payroll tax doesn’t cause my cohort to export jobs, we just eliminate them.

  13. Doesn’t a payroll tax encourage businesses to run a higher capital:labour ratio than they otherwise would?

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