In contrast to the Henry report's advice that payroll tax be eventually abolished, the Rudd government has decided to increase its own payroll tax, writes Gavin R. Putland.
In contrast to the Henry report's advice that payroll tax be eventually abolished (recommendations 55 and 57), the Rudd government has decided to increase its own payroll tax. No, really. Australia's federally mandated, employer-funded 9% superannuation contribution is equivalent in every way to a federally funded 9% contribution, paid for by a 9% federal payroll tax.
By itself, a federally funded super contribution proportional to income would be pilloried as upper-class welfare. By itself, a payroll tax would be seen as just about the stupidest way to pay for something. Put the two together, and you have such a great vote-winner that the government, without any supporting recommendation in the Henry report, wants to ramp up the tax to 12%.
Even at 9% the tax is patently worse than the much-ridiculed state payroll taxes because it has a higher rate and no thresholds. But by implementing the superannuation guarantee as a compulsory "private" transfer, the government keeps it out of the federal Budget and thereby hides the magnitude of its intervention and the crass stupidity of the equivalent tax.
Meanwhile, the government studiously ignores Henry's recommendations 51 to 54, which call for an all-in land tax with a threshold and progressive rates, levied on value per square metre rather than aggregate value. The per-unit-area basis avoids distortions related to aggregation and ensures that most agricultural land would be below the taxable threshold.
It strikes me that such a land tax would be particularly suitable for on-budget financing of the superannuation guarantee, for the following reasons:
(1) Taxes that are politically unacceptable when used for general revenue can become acceptable when hypothecated for popular causes.
(2) Few causes are more popular than the financing of retirement incomes, because everyone hopes to retire.