Page 4128 - Week 13 - Thursday, 31 October 2013
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system. Further, conveyance duty is an inefficient tax. It is transaction based; its incidence is uneven, impacting on a small percentage of the population only in any given year; and hence it has a distortionary economic burden. The amount of revenue raised fluctuates greatly from year to year, making it difficult to estimate future revenue with any degree of certainty, hence making budget planning difficult.
Under the taxation reform plan, the extent of budget reliance on inefficient taxes will reduce significantly over time. The cumulative economic benefit of improved economic efficiency was estimated to be $169 million in the first five years of tax reform. The government said at the outset that reform of this extent cannot be a set and forget exercise; this is necessarily an ongoing and dynamic reform program that requires monitoring, adjustment, flexibility and responsiveness over the short and long terms.
This is demonstrated as follows. Firstly, undertaking reform over two decades provides the appropriate amount of time for the market to adjust to changes; defining the first five years allows the market to operate with certainty as to the direction of the changes. Second, the government will have regard for the impact on Canberrans and establish mechanisms to preserve broad equity in the tax system and ensure the impact of the change is not excessive for any particular groups or at any particular stage of the reform program. Thirdly, the government committed to providing updated taxation reform figures annually for the coming forward estimates periods as part of the budget.
Forecasting decades ahead is not without its challenges. Quite simply, you would need a crystal ball to try to predict what property prices, economic growth and interest rates will be over such a period. That is why the government has focused on annual updates within rolling five-year reform programs.
We have also analysed the longer term pattern of revenue replacement between the revenue lines impacted by taxation reform. The analysis continued the shifting of taxes between inefficient transaction taxes to more efficient tax lines over two decades. A range of scenarios have been considered, with a range of underlying assumptions for those parameters which will impact the experience across these revenue lines. These assumptions include the wage price index, property values, property turnover rates and population growth.
The analysis provided a range of possible target revenue paths. No single path is definitive; no single path was intended to be used as a defined reform approach or revenue replacement amount. Rather, the analysis provided tools by which to measure the overall progress and pace of the reforms and assess the efficacy of either accelerating or slowing the rate of individual reforms of taxation lines based on prevailing economic circumstances, the broader fiscal strategy of the government and the assessed financial capacity of ACT households and businesses.
It is important to note that the tax reform program must also have regard for the broader budget context and remain flexible to respond to external impacts on the budget, which will undoubtedly occur but cannot be predicted, over a 20-year period. The tax reform program should be implemented to be consistent with, and to support where appropriate, the government’s overall fiscal strategy.
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