Federalism and Tax Reform

• DOI: http://doi.org/10.1111/1467-8462.12272
• Date: 01 June 2018
• Published date: 01 June 2018
• Author: John Freebairn

Policy Forum: ‘Shifting the Dial’, The Productivity Commission’s

Productivity Review

Federalism and Tax Reform

John Freebairn*

Abstract

The form and potential contributions of

cooperative federalism and the additional

skills and tasks required of the public service

to turn well-known and developed tax reforms

into actual reforms are evaluated. Cooperative

federalism seems necessary for reforms involv-

ing state taxes and changes in the mix of taxes.

Additional public sector skills and involvement

in developing details of tax reform packages

and their implementation, and then monitoring

the outcomes, are important to raise commu-

nity understanding of, and conf‌idence in,

taxation reform.

1. Introduction

Chapter 6, ‘More Effective Governments’,of

the Productivity Commission’s (2017) Shifting

the Dial report sets out proposals for govern-

ments to be more effective in raising national

productivity to support higherliving standards.

National, state (and territory)and local govern-

ment decisions to improve productivity include

policies for taxation, government-supplied

goods and services, and establishing and

monitoring property rights and regulations to

support private sector decisions on investment,

employment and consumption. This article

explores the application of cooperative federal-

ism and the development of government

decision-making procedures proposed in Shift-

ing the Dialto facilitate adoption of productivity

enhancing taxation reform across the three

levels of Australian government.

1

Recent reviews of taxation for the national

government, including the Henry Review (Henry

et al. 2010) and Re:think (Australian Government

2015) for state governments, including the

Australian Capital Territory (ACT Treasury

2012) and South Australia (SA Government

2014), along with numerous academic and other

studies, have proposed and evaluated many tax

reform options that would substantially increase

national productivity. For example, the Henry

Review (Henry et al. 2010, p. 73–75) report

estimated gains of between 2 and 3 per cent of

GDP for a subset of its recommendations.

Proposed productivity enhancing tax reforms

include packages of removing special exemp-

tions to broaden tax bases and fund lower tax

rates, and changes of the tax mix by replacing

taxes that carry high excess burdens with taxes

that carry much lower excess burdens. Many of

the proposed reforms involve taxes across

national, state and local governments.

* Department of Economics, University of Melbourne,

Victoria 3010 Australia; email <j.freebairn@unimelb.edu.

au>.

The Australian Economic Review, vol. 51, no. 2, pp. 262–68

°

C2018 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research

Published by John Wiley & Sons Australia, Ltd