Call For Australian Regional Tax Incentives

by Mary Swire, Tax-News.com, Hong Kong

01 April 2010

The National Farmers’ Federation (NFF) has released an issues paper, entitled ‘Population Policy: A Taxing Issue’, in which it says that the Australian government now has an opportunity to develop regional tax policies to develop population and commercial centres outside of the country’s capital cities.

NFF President, David Crombie, declared that: “With the release of the Henry tax review imminent, it’s time to seriously deal with population policy in Australia and pull the tax trigger to re-energize and grow the under-developed 97% of the country that is regional Australia.”

“Genuine tax incentives, and the commercial opportunities they drive, are essential to major businesses setting up substantial and long-standing operations in regional areas,” he continued. “Governments can’t make people move to regional areas, but by creating the case for businesses to start-up or relocate operations off the back of innovative and worthwhile tax advantages, people will follow the employment opportunities for themselves and their families.”

He concluded that such incentives were long overdue. About 88% of Australia’s total population are concentrated in and around small coastal recesses, mainly Sydney and Newcastle, Melbourne, Brisbane, Adelaide and Perth, representing just 3% of its land area. If businesses and people are not attracted to major regional cities as new commercial hubs, he said, 35.9m people would choke Australia’s cities to a dysfunctional standstill by 2050.

The issues paper reports that, on average, it costs rural residents five-times as much to access essential services as it does metropolitan residents; and their biggest cost disadvantages are for hospitals, residential care services, secondary schools, and colleges and universities. Furthermore, the possible future introduction of a carbon price on transport fuel will disproportionately increase the costs of living for regional businesses and populations who must travel greater distances.

Existing federal and state government policies, it says, also exacerbate the cost differential between those living and working in regional Australia compared with those in metropolitan areas.

For example, progressive income taxation penalizes volatile incomes, such as those of farmers, more harshly than relatively stable incomes. Tax averaging is available to allow farmers to mitigate this penalty. However, the same facility has not been extended to commercial input suppliers or suppliers of household goods and services in regions where these volatile agricultural industries are a reality and their economic impacts felt the most.

It points out that a less progressive tax rate structure can smooth these distortions, which is reflected in the direction of federal policy on income tax in recent years, but its opinion is that a bias against country living has become ingrained. The boost to city property values, provided through the exemption of the family home from capital gains tax, is said to be an example of such inequity. There are not the opportunities in regional Australia to enable people to reap the rewards of investing in their primary residence and capitalizing on the gains.

The paper therefore pushes for tax and other incentives and/or concessions to attract major business operations to start-up or relocate to regional centres. Apart from a national infrastructure strategy, it concludes that the Australian government must address regional development goals by, for example, improving and extending the regional income tax rebate scheme for individuals, and providing other tax-linked drivers of investment.

In that regard, while Managed Investment Schemes have been largely condemned as distorting resource allocation in regional Australia, the paper requests an examination of alternative mechanisms that could draw in investment through the taxation system, but retain a link to the output generated by the operation.

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