3 million workers could benefit from tax shift

Prosper Australia today released new research highlighting the economic benefits of shifting taxes off income and onto land. 

Report highlights:

  • Low and middle income earners face effective marginal tax rates (EMTRs) on extra income as high as 80%. High EMTRs are a disincentive to work.
  • Reducing high EMTRs to provide fairer and more efficient returns to work requires either lower welfare payments, higher top tax rates, or reform of the tax mix.
  • Levelling state taxes on land up to the ACT benchmark could raise $27 billion more in revenue each year without reducing investment or growth. 
  • With changes to Commonwealth-state grants, this tax shift could fund a halving of all welfare withdrawal rates, producing an effective tax cut of 20-30 cents in the dollar for over one million workers, and extra cash in the pocket for around two million more. 

“When income tax and strict welfare means-testing combine they discourage people from working more hours, with many people losing 80 cents in the dollar” said Prosper Australia Director of Research and Policy Dr Tim Helm.

“That is a really inefficient way to raise revenue, and we’d be far better off using taxes on land, which don’t discourage work or investment.”

Prosper’s study looked into how extensively states tax land and rezoning windfalls and what the additional revenue from levelling up tax rates to the benchmark jurisdiction – the ACT – could pay for in welfare system reform. 

“The ACT taxes land really well, in particular, because they capture windfalls from land rezoning, and if other states were to meet their standard there’d be a huge pool of additional funding for tax reform.” 

“Our research found that if other states taxed land like the ACT we’d have enough revenue to cut welfare taper rates in half, giving one million people an effective tax cut of 20-30 cents in the dollar, and putting cash in the pocket of two million more.”

“Adjusting Commonwealth-state grants and providing incentives for states to tax land and rezoning windfalls would be an attractive way for the Commonwealth to drive tax reform where it’s most valuable, which is in how well states tax our most efficient base”

“The Stage 3 tax cuts debate was all about fairness and who wins and loses from different income tax proposals. That’s fine, but this was not proper tax reform. Proper tax reform is about replacing bad taxes with good ones” said Dr Helm.

Read the report.