The NSW Government should replace transfer duty with a broad-based land tax and work with the other states on a national road user charging scheme for electric vehicles.
The recommendations stem from the Review of Federal Financial Relations set up by NSW Treasury in 2019 to examine how the states and the Commonwealth can work better together to support and fund the delivery of critical services and infrastructure in a time of change.
(The role of Local Government is being considered by the NSW Productivity Commission.)
In a draft report released this week, the review suggested that with economic recovery from Covid-19 now a priority, “a more equitable and efficient approach to taxation” is needed to ensure state governments can provide taxpayers with reliable, quality government services, while keeping the taxes they pay as low as possible.
“To do this, we need to identify practical ways to maximise the value we get per dollar of tax raised. We need to make taxes as simple as possible and limit the impact they have upon citizens’ lives.”
The report argues that the Australian federal model is “not best practice”, with vertical fiscal imbalance worsening in recent years.
“From 1995 to 2017, the state and local share of expenditure by all three levels of Australian government increased by 4.7 percentage points, but their share of national tax revenues fell by 3.1 percentage points.”
On road funding, the report recommends that once distance-based charging for electric vehicles is been successfully implemented, “the NSW Government should work with the Board of Treasurers to replace vehicle registration, licence fees, stamp duties on motor vehicles and motor vehicle insurance with a distance-based charging scheme that better reflects the social costs of road use, including wear-and-tear, pollution and congestion.
“Revenue should be hypothecated to expenditure on roads and other transport infrastructure.”