It seems logical that the Australian Tax Office becomes the administrator of all Australian taxes, including state and local taxes.
At first glance, this idea might appear something of a pipe dream. But take the time to consider it more carefully and it soon becomes apparent that the proposition makes considerable sense.
Clearly, our federation can deal with the federal government collecting taxes on behalf of the states. It does so in relation to GST and the National Tax Equivalent Regime for state de-facto corporate income taxes.
Meanwhile, the increasing use of electronic data collection puts us in the perfect position to benefit from the absorption of the various offices of state revenue into one – the ATO. Not only does this proposal offer significant advantages in terms of time and cost savings, but also in terms of compliance measures.
Both tax payer and tax administrator stand to gain from the appointment of a single tax collector.
For the tax payer, it means greater simplicity in dealing with the tax system.
For the tax collector, it means a significant reduction in costs, both in terms of administrative staff and expensive computer capacity. In addition, there would be clear compliance benefits from data-matching.
There is also the advantage that the tax administration would be able to look at a taxpayer more holistically in evaluating the level of risk and appropriate level of ‘touch’ that should be applied.
Good tax administration involves getting the risk-touch balance right, such that those who should be left to deal with other things in life are left do so. Those for which a stronger touch is required – be it firmer or with more compassion – could be appropriately dealt with.
This ability would be greatly enhanced by the tax administrator seeing the whole picture.
It should be strongly emphasised that this proposal does not aspire to take away sovereignty from the states. It is simply about finding the most efficient collection mechanism.
But why would the states and territories agree to the proposal in any case?
We believe the best way to enable the ATO to become the single tax collector is through a voluntary mechanism with a carrot and stick approach for the states.
We would suggest two elements to this approach. The first requires the federal government to bear the administration costs. That includes the full cost of transition as well as the permanent cost of administering all taxes. For the states, it would undoubtedly represent a financial windfall.
The second element requires the Productivity Commission to undertake two analyses of the related costs and benefits of the new collection system for a period of five years.
The first analysis would focus on the sum total of productivity benefits and savings derived from all states and territories participating. It would include all secondary benefits from greater foreign investment, but would be net of any costs of a single administrator. This would be known as the ‘all-in benefit’.
The second analysis would focus on the productivity and cost detriment for only some state participation as against the 'all-in benefit' position. This would be known as the 'some-in detriment' and represent a cost.
While those states that agreed to join would receive their share of the estimated 'all-in benefit' through additional funding, states who declined would receive their share of the 'some-in detriment' through a reduction in funding.
The beauty of this method is that those states that chose to join would not be disadvantaged by signing up early. On the other hand, those states that continued to waiver would be disadvantaged significantly.
This neatly reverses the general principle that it is better to hold out for a better deal. It creates a new framework of simplicity of doing business in Australia. It is also fair.