Architecture of Australia's tax and transfer system
State and local governments accounted for around 18 per cent of total Australian tax revenue in 2006‑07. The States collected $48.9 billion through their own taxes, with a further $9.4 billion being raised through local government taxes. Taxes on property, including land tax, rates and stamp duty, make up around half of state tax revenue, with payroll taxes making up a further quarter (Chart 2.7). Other important sources of tax revenue are taxes on motor vehicles, gambling and insurance contracts. In total, the States levy around 26 different types of taxes, including local government rates. Nevertheless, in comparison to the Australian government, the overall state tax base is relatively narrow. While there are similarities in the main taxes used in each State, the thresholds, rates and range of exemptions from the taxes differ. See Table 2.18 for a detailed description of state taxes.
Chart 2.7: Sources of state tax revenue in 2006‑07
(All States including local government)
Source: ABS (2008a).
Chart 2.8 highlights the relative importance of the main state taxes to each State.
Chart 2.8: Sources of tax revenue in 2006‑07 by State(a)
- As the ACT does not have local councils, the ACT's other taxes include $159 million in rates.
Source: ABS (2008a).
All States levy payroll tax on employers that have total payments for employee wages and salaries exceeding specified tax‑free thresholds. Wages and salaries are defined to include most forms of employee benefits, including commissions, bonuses and fringe benefits, although there are differences in the definitions across the States. Some organisations are generally exempt from payroll tax, such as religious institutions. The tax‑free threshold exempts a significant proportion of businesses and employees from the payroll tax base. For example, in NSW more than 90 per cent of businesses are exempt from payroll tax under the current tax free threshold (IPART 2008). Each State determines its own threshold and rate. All States have a single flat rate, except for Queensland where the tax‑free amount is gradually eroded in incremental rates once the threshold has been exceeded.
The States are undertaking payroll tax harmonisation, with several having harmonised their payroll tax arrangements (except for thresholds and rates), and the other States agreeing to harmonise across eight areas.
Stamp duty on conveyances
Each State levies stamp duties on the transfer of property. The duty is usually paid by the purchaser based on the sale price of the property (or its market value if higher). Table 2.18 shows the rates and thresholds which apply in each State for the purchase of residential property. Different rates and thresholds may apply to the purchase of different types of property. There are programs in each of the States that provide concessions for first home buyers and other groups.
All States except for the Northern Territory levy land tax on the total holding of unimproved land value, excluding principal residences. Land used for primary production is exempt or deductible in all States. Other exemptions include caravan parks and aged care facilities in some States. Most jurisdictions also have tax‑free thresholds. Land tax rates are generally progressive. In assessing the value of land, the States either take the value at a specified time in the year or an average of the value over the previous three years.
Local government rates
Local government rates are a tax charged by local councils on the value of property (the ACT does not have local councils and rates in the ACT are charged by the ACT Government) (Table 2.20). Most types of land are subject to rates, though the rate that is charged can vary by the land type, for example residential or commercial use. The valuation method for rates also varies considerably across councils, with unimproved value, capital improved value (that is, the total value of the property) or rental value used as alternate benchmarks. Councils have some autonomy in setting rates, although in NSW (and for the next three years, the Northern Territory) the State government restricts the rate of annual increases. The average rate varies significantly across jurisdictions, with councils in areas of lower land value tending to charge higher rates. This may reflect the fact that if land values in one area are lower than in a neighbouring area, the rate must be higher to provide the same level of service.
All States impose taxes on general insurance premiums. The rate ranges from 7.5 per cent in Queensland to 11 per cent in South Australia. New South Wales, Queensland and Tasmania have special rates on particular classes of general insurance business. All States, apart from Western Australia, also impose taxes on life insurance policies at different rates. NSW, Victoria and Tasmania impose taxes on insurance companies or their policies to fund fire brigades. Additionally, NSW and the ACT apply a health insurance levy (known as the Ambulance Service Levy in the ACT) on health insurance policies. Victoria, Queensland, Western Australia, South Australia and Tasmania impose taxes on motor vehicle third party insurance, in addition to registration, other motor vehicle taxes and licence fees.
Motor vehicle taxes
The States impose a variety of taxes on vehicle registrations and transfers of ownership. Registration transfer charges (stamp duty) are usually based on the price of the vehicle or its market value if higher. The States use a range of methods for applying rates. Passenger vehicles are generally treated differently from other vehicles. Annual motor vehicle registration fees may also apply before a vehicle is allowed to be driven on public roads. These taxes, which apply to the stock of registered vehicles, are levied in different ways by the States, either according to the weight of the vehicle or the number of cylinders. Vehicles for business use have different rates in some States. Motor cycles also have separate flat fees in all States.
The States levy a range of taxes on different forms of gambling, which are generally based on the gross value of gambling activity. These include taxes on government and/or private lotteries, gaming machine taxes, casinos, race betting and other gambling such as internet gaming, keno and betting exchanges. The rates of tax vary across States, by the type of gambling listed above, and within the types of gambling activity.
Non‑tax resource revenue
A variety of resource royalties and payment arrangements are used by the States to price the use of natural resources. Table 2.5 provides a summary of some features of state mineral royalty arrangements. These include specific royalties levied as a constant amount per physical unit of production, ad valorem royalties levied as a constant percentage of the value of production, or profit based royalties levied on the profit derived on sale. At a more detailed level, the arrangements are very complex, covering over 60 different royalty arrangements. The details of each of these royalty arrangements (including applicable rates) are outlined in Table 2.19.
Table 2.5: State mining royalties
|All States||Generally||Ad valorem royalty, generally ranging between 2.5 and 7.5 per cent of the value of mine output|
|All States||Certain low value commodities such as clay and sand||Specific royalty (amount per tonne)|
|Queensland||Coal||Base rate of 7 per cent of value. An additional 3 per cent applies to value above $100/tonne|
|Tasmania||Most minerals||Hybrid royalty arrangements comprised of an ad valorem and profit‑based royalty.|
|Northern Territory||Most minerals except petroleum||Profit‑based royalty|
There are various arrangements for charging for non‑mineral natural assets. These include:
- a forestry royalty for trees accessed from public land (state forests), (see Section 8.5 for an explanation);
- licence fees and access charges for the use of water resources. These vary between jurisdictions. For example, in NSW, the Independent Pricing and Regulatory Tribunal sets the prices that can be charged for water, including the fees for licence applications and annual water charges; and
- licensing arrangements for fisheries and aquaculture resources. For example, in Queensland licences are required to undertake commercial fishing, buy fish from a person licensed for commercial fishing, provide charter fishing services, fish in the Torres Strait, own a commercial fishing boat, or own a boat that transports fish caught on a commercial fishing boat.
Next Page – Section 2.6: Tax Expenditures >>
<< Previous Page – Section 2.4: Australian Government Taxes