The Devil Is in the Detail: The Distributional Consequences of Personal Income Tax Sharing in the Australian Federation

Australian Tax Forum, Vol. 30, 2015

21 Pages Posted: 18 Dec 2015

See all articles by Richard Eccleston

Richard Eccleston

University of Tasmania

Neil Warren

University of New South Wales (UNSW)

Date Written: October 7, 2015

Abstract

The March 2014 Report of the National Commission of Audit and the Commonwealth’s tax reform and federalism discussion papers published in the first half of 2015 provided some early insights into the Coalition Government’s agenda for reforming the national tax system and fiscal federalism. One proposal with potential to facilitate state tax reform and potential to partly address the vertical fiscal imbalance in the Australian federation is to encourage states and territories to introduce personal income tax levies or surcharges on the same tax base as the federal income tax. Granting states access to the personal income tax base could address a number of widely recognised policy problems. A modest state personal income levy could be used to replace inefficient state level transaction taxes, improving efficiency and equity within the national tax system. A more ambitious option would be for the Commonwealth to cut the federal income tax, creating the tax space for the states to use the federal income tax base to raise a significant portion of revenue. However, if such a levy is based on taxpayers’ state of residence (which is required to create inter-jurisdictional competition), then, based on the experience of other federations such as the United States and Canada, per capita revenue will vary considerably from state to state. This article outlines these policy design issues before using ATO income tax data to present an analysis of how revenues from different state income tax levies and surcharges would be distributed across the Australian federation and what issues this raises for the introduction of a state income tax in Australia.

Suggested Citation

Eccleston, Richard and Warren, Neil, The Devil Is in the Detail: The Distributional Consequences of Personal Income Tax Sharing in the Australian Federation (October 7, 2015). Australian Tax Forum, Vol. 30, 2015. Available at SSRN: https://ssrn.com/abstract=2704649

Richard Eccleston (Contact Author)

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Neil Warren

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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