The meeting late last week of the Council on Federal Financial Relations in Canberra has put a focus on tax reform and the opportunities for more efficient and sustainable revenue arrangements to address the growing challenges and financial pressures facing all governments, including local government.
As it currently stands, Australia's tax system is not serving local communities well. Generally, local government as a whole is raising as much revenue as can be reasonably expected through its own tax effort. Grants from other levels of government are an important revenue source to help councils meet community needs. Those grants have been falling as a proportion of tax revenue and communities are feeling the squeeze. A comprehensive review of the tax system, in parallel with a review of how the Federation should work, is essential.
All levels of government and the community need to be involved in the review of taxation, and in looking at how we raise and distribute the tax revenue we need to deliver the services and infrastructure our communities need and want, within the framework of the six principles for the taxation reform outlined by the Treasurer, the Hon Joe Hockey MP:
- It must promote a stronger economy building jobs, growth and opportunity
- Any reform must be fit for purpose in the modern economy
- Tax changes must encourage workforce participation and ensure families control their own money
- Generally, you should not be taxed until you have earned the income
- Reform must encourage innovation and opportunity, and reward for effort
- As best as possible, the revenue raising capacity of each tier of government should be aligned to responsibilities of funding and service delivery.
I have urged Mr Hockey and Minister for Finance, the Hon Mathias Cormann that any revenue mechanisms and tax sharing arrangements being considered as part of the reform should acknowledge the essential role of local government as the third tier of government in delivering governance, services and infrastructure at the local level. We should not downplay the possible implications of the tax reforms on local government's ability to raise the revenue necessary to deliver these important services.
This taxation reform process presents a vital opportunity to address the current challenges of revenue and service delivery facing all governments and local government will continue to play an active part in both the tax reform and Federation reform to help achieve a well-designed tax system that is fair, efficient and sustainable.
You can read the communique that came out of the meeting of the Council on Federal Financial Relations at this link.
Mayor Troy Pickard
ALGA President