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Taxation

Implementing targeted taxation policy changes will assist the NQ regional communities and industries most heavily affected by the ongoing effects of the pandemic and support the maintenance of jobs and economic activity.

Content accurate as of July 2020.

Australia entered 2020 with an economy growing slower than desired, but with public finances that were in a relatively strong position – low debt compared to most other advanced economies and a forecast Commonwealth budget surplus.

There was a general sense that the Australian economy was still underperforming and was about to embark on a gentle upswing. The Governor of the RBA supported this positive view as late as February, noting:

  • the International Monetary Fund’s (IMF’s) prediction that global growth would be stronger in 2020 than in 2019
  • the RBA’s projection that economic growth in Australia would pick up from an average rate of 2 per cent over the past couple of years to 2.75 per cent in 2020 and 3 per cent in 2021. Drivers of this growth were identified as including accommodative monetary policy, a new expansion phase in the resources sector, stronger consumer spending, a recovery in dwelling investment later in 2020, high levels of spending on infrastructure and strong growth in public demand
  • promising evidence in forward-looking indicators such as job vacancies.
An 18-year-old entering the workforce in 2020 could have expected to work under consecutive federal budget surpluses for the foreseeable future, and to see the Commonwealth achieve zero net debt by the time they were 28 years of age. That same worker cannot now expect a budget surplus until they are 37 years old, and net debt is not predicted to reach zero until they are 55.

Like Australia, the Townsville region entered 2020 with improving conditions and confidence and a positive forecast from a position of relative weakness. In the years preceding, the region had experienced a number economic and environmental events including but not limited to:

  • The decline in Mining investment (from 2013)
  • The closure of the Queensland Nickel Refinery (2016)
  • Prolonged drought (2014 – 2019), and,
  • The 2019 unprecedented monsoonal event.

Table 1 graphs the unemployment rate for Townsville and Queensland for the nine years from the December quarter in 2010 to the December quarter in 2019.

Table 1: Unemployment Rate, Townsville and Queensland

Unemployment Rate
Source: Department of Education, Skills and Employment, Small Area Labour Markets Australia, various editions (4 quarter smoothed)

Townsville’s rate of unemployment vividly illustrates the impact of these events. As at December 2019, Townsville recorded an unemployment of 7.6 per cent, 1.5 per cent above the rate recorded for Queensland and 2.5 per cent higher than the rate recorded for Australia.

This was a significant improvement however on the high of 10.8 percent recorded in December 2016 with considerable momentum gained through increased mining investment, improved agricultural conditions and the leadership and initiative of the Townsville City Deal. Based on a continuance of these factors, the region anticipated a return to parity with Queensland unemployment rates by December 2020 through the addition of an estimated 2,700 jobs.

The pandemic is not just an enormous health and social challenge but an economic one as well. The scale of the impact is global and includes:

  • The IMF is forecasting the world economy to contract by 3 per cent this year (compared to just 0.1 per cent during the GFC in 2009).
  • China’s GDP fell in the March quarter by 9.8 per cent, their first quarterly fall on record.
  • In the United States, 33 million jobless claims have been made in the last seven weeks, with the unemployment rate rising to 14.7 per cent.

In Australia, Treasury is forecasting GDP to fall by over 10 per cent in the June quarter, which would represent our biggest fall on record. At $50 billion, this is a loss equivalent to the total combined quarterly production of South Australia, Tasmania, the Northern Territory and the Australian Capital Territory.

Treasury is forecasting the unemployment rate to reach around 10 per cent, or 1.4 million unemployed, in the June quarter.

In April 2020, surveys showed that job advertisements halved and activity in the construction, manufacturing and the services sector had their largest ever monthly falls. Other key indicators of the scale of the impact include:

  • New motor vehicle sales fell by 48 per cent through the year, their largest ever fall
  • House sales fell by 40 per cent
  • Domestic and international air travel is down by more than 97 per cent.

An analysis by the Townsville City Economist of the impacts of COVID-19 found that left unmitigated and without government support, Townsville’s job losses and unemployment are projected to be in the vicinity of 20% (19,216 jobs lost). However, given the support to be provided by the Australian Government’s economic hibernation measures, it is estimated that Townsville’s economic impacts will be limited to:

  • $529m or 4.97% of total value-added lost
  • 6,951 jobs lost
  • Unemployment peaking in the September Quarter @ ~14%.

Townsville Industry sectors most heavily impacted include:

  • Retail Trade -$99M value-added and 2,093 jobs lost
  • Accommodation & Food Services -$76m value-added and 1,653 jobs lost
  • Construction - $81M and 611 jobs lost
  • Other Services -$56M value-added and 916 jobs lost
  • Education and Training -$51M value-added and 823 jobs lost.

This has resulted in a number of key challenges relating to taxation policy and include:

  • Negative economic growth leading to lower taxation receipts at all levels of government
  • Higher unemployment leading to higher reliance on social welfare
  • Increased public spending to minimise the immediate shock of economic hibernation
  • Short-term stimulus (such as JobSeeker and JobKeeper) are welcome, however are likely to cause issues as the September cliff approaches if industries are unable to get back to normal quickly.

The Productivity Commission 2020, Remote Area Tax Concessions and Payments, Study Report, Canberra examined three longstanding tax concessions and payments targeted to residents and businesses in remote and regional areas: the zone tax offset, the remote area allowance, and the fringe benefits tax remote area concessions.

“Many government programs already look to address disparities in the cost of, or access to, services or infrastructure between different parts of Australia. For example, as mentioned earlier, the Australian Government provides additional payments to doctors to work in remote areas, and subsidies for the supply of some utility services like telecommunications. These types of programs exist in addition to Australia’s system of horizontal fiscal equalisation, which seeks to give each jurisdiction the fiscal capacity to provide a similar level of public services, and notably takes into account the higher per capita expenditure on service delivery in remote areas. Governments, particularly at the State and Territory and local levels, also have programs to support regional economic development.”

The Productivity Commission indicates that Australia’s system of horizontal fiscal equalisation, which seeks to give each jurisdiction the fiscal capacity to provide a similar level of public services, is sufficient to level the playing field and people will naturally choose to locate themselves in the regions. The assumption made by the Productivity Commission is that net migration into the region happens as it is an attractive choice – people will equally go to the regions as well as cities. Townsville recent experience, as illustrated by Table 2, indicates otherwise and there needs to be a positive attracter for individuals and businesses to live, work and play in the regions.

Table 2: Components to Population Increase – Townsville

Components to Population Increase - Townsville

Hospitality Fees
Current Policy

A range of responses have been put in place by all levels of government.

Proposed Policy

Establish a 3-year program of reduced/waived fees and charges for ongoing business in line with impact on industries in the NQ region:

  • Accommodation and Food services – liquor licensing, etc
  • Tourism – Marine park fees, etc.
Responsibility
  • Council
  • Queensland Government
  • Australian Government
Payroll Tax
Current Policy

In Queensland, there have been a number of payroll tax relief measures to alleviate the impacts of coronavirus (COVID-19). These include:

  • refunds of payroll tax for 2 months
  • a payroll tax holiday for 3 months
  • deferral of paying payroll tax for the 2020 calendar year.
Proposed Policy

Targeted payroll tax reduction for industries heavily affected and likely to remain impacted through 2021 (option: extend current refunds, holidays and deferrals for specific industries as long as they remain impacted).

Responsibility
  • Queensland Government
Business Tax
Current Policy

The Organisation for Economic Cooperation and Development (OECD) found that at 30 per cent, Australia's main corporate rate was still much higher than many competitors including New Zealand, Italy, South Korea, Canada, the United States, Norway and Britain.

The OECD, in its first report in 2019 comparing business tax rates across more than 100 countries, found Australia was a high-taxing outlier among rich and developed nations, which are continuing to slice their tax rates.

Australia has the third-highest effective corporate tax rate in the world. Only Costa Rica and Chile have a higher effective company rate than Australia.

The nation's businesses also face some of the highest nominal rates in the world.

The OECD also found Australia relied more heavily than most other nations on corporate tax collections to pay for government services.

While the government is cutting the corporate rate to 25 per cent by mid-2021 for firms with a turnover of up to $50 million, bigger companies will continue to face a tax rate of 30 per cent.

Proposed Policy

A company tax rate reduction of a further 5 per cent for companies resident in the North Queensland Region.

A more competitive company tax rate will generate economic activity encouraging investment, raising productivity, increasing Gross Domestic Product (GDP) and, over time, raising real wages and living standards.

The rationale is that lowering tax rates frees up business funds so these can be directed instead of growing the business and also making Australia a more attractive destination for new businesses.

The catch is to decide who would end up paying for the costs.

Even if companies generate more income and profits are taxed in Australia, extra taxes and job growth will lag behind and will translate into a significant revenue gap to close.

Responsibility
  • Australian Government
Regional Workers Tax Credit
Current Policy

Rebate of tax, known as the zone tax offset, is available to individuals who are residents of specified remote or isolated areas of Australia (known as a zone). This doesn't include an offshore oil or gas rig.

From 1 July 2015, you can claim the zone tax offset if your usual place of residence was in a remote or isolated area (known as a zone) for 183 days or more during the income year.

Proposed Policy

Introduce an income tax credit for regional workers that could be used to top up people who are on low wages such as those who can only find part-time work. Its appeal is that it is both an incentive to work and an incentive for businesses to employ.

Responsibility
  • Australian Government
Superannuation Guarantee Charge
Current Policy

The current superannuation guarantee charge (SGC) is at 9.5 per cent rate and is due to rise progressively to 12 per cent by 2025 and is a cost to the business.

Proposed Policy

Cancel the superannuation guarantee charge (SGC) rate rise. If future employee costs for businesses don’t increase, that may be an incentive for businesses to hire additional employees.

Responsibility
  • Australian Government
Regional Investment Attraction Package
Current Policy

The Queensland Government has the $150 million Advance Queensland Industry Attraction Fund. The Fund seeks to bring contestable projects to Queensland in order to drive job creation, regional growth, increased innovation and technology and supply chain development.

A contestable project is where there is at least one other viable, alternative international or Australian project site to the Queensland location under active consideration.

Queensland Government also has the $175 million Jobs and Regional Growth Fund to facilitate projects that support regional investment and improve ongoing employment outcomes in regions facing economic and employment challenges.

NSW Government has a Regional Investment Attraction Package to attract new and growing businesses to NSW. It includes:

  • grants and interest-free loans to help new businesses to establish themselves
  • an ‘investment concierge’ for expert and tailored support
  • relocation assistance of up to $10,000 per worker to help attract skilled employees to regional businesses operating in eligible industries
  • special activation precincts to offer a coordinated approach to land-use and infrastructure planning with the aim of creating attractive centres for businesses to establish and grow.
Proposed Policy

Incentives to invest in the regions. An example is the instant asset write-off to support businesses needing to buy or build assets to start up or keep their businesses going. Businesses can deduct an additional 50 per cent of the cost of an asset bought or built in the year.

Responsibility
  • Queensland Government
  • Australian Government
Residential Stamp Duty
Current Policy

In Queensland, stamp duty – or transfer duty – is charged on transfers of residential land and is payable by the purchaser.

The state government has a “general rate” of stamp duty which is payable by people purchasing an investment property. It then provides a concessional rate for those buying a home.

First-home-owners then get their rate discounted even further, so long as the purchase price is below a certain threshold.

Land tax is a state tax, calculated on the freehold land you own in Queensland at midnight on 30 June each year. For example, the land tax liability for the 2019–20 financial year was calculated on 30 June 2019.

The tax rate that applies depends on what type of owner you are, the total taxable value of your land, and if any exemptions apply.

Proposed Policy

Replace stamp duty for residential land with land tax. The rationale is that it will capture increased asset prices and also would make it easier for the young to buy houses once we have returned to a healthy economy and low unemployment.

Responsibility
  • Queensland Government
Commercial Stamp Duty
Current Policy

In Queensland, stamp duty – or transfer duty is applied whenever there is a transfer of business assets.

A person who wants to buy a business has to pay stamp duty/transfer duty on the purchase price, stamp duty on the insurance premium, stamp duty on the strata insurance if the business is in a shopping centre or strata titled premise.

Proposed Policy

Eliminating stamp duty / transfer duty on business assets, insurance premiums including strata insurance will create an incentive for commerce.

Additionally, it would take away roadblocks for the sale of potential zombie businesses as a result of the COVID-19 impacts and the JobKeeper initiative i.e. someone who wants to sell a business and the person who wants to buy that business won’t have the additional impost of stamp duty / transfer duty.

Responsibility
  • Queensland Government

The economic impact of COVID-19, and the need to efficiently provide timely assistance and support to businesses, individuals, and communities, presents a real and pressing challenge to State and Federal Governments. Government needs to act decisively to address the economic consequences with tax and fees and charges reform providing an effective way to achieve this.

This brief outlines a number of targeted taxation changes and direct assistance packages options that will immediately and efficiently assist the NQ regional communities and industries most heavily impacted by the ongoing effects of the pandemic and support the maintenance of jobs and economic activity within the region.

Not only will these measures support the community during this extraordinary time, they will set a sound foundation for a strong and timely recovery once the pandemic crisis passes.

Economic

  • Minimise job losses
  • Keep money flowing in the economy
  • Less reliance on welfare.

Policy

Policies that will be supported by this Taxation Policy specifically include:

  • Promoting Regional Growth
  • Supporting Regional Net Migration

This Taxation policy brief is an enabler and support of all the other policies suggested.

Programs, Projects and Initiatives

This policy is an enabler and support of all the other programs, projects and initiatives. This policy directly improves the ability for all funded projects budgets to stretch further and injects more money into the region to minimise the impact on the economy.