Western Australian Government Blasted Over Tax Turnaround

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

17 September 2001

In a shocking turnaround Western Australia's Labour government, which won the State elections seven months ago on promises not to raise taxes, has unveiled its first Budget that - wait for it - raises taxes.

WA Premier Dr Geoff Gallop persuaded voters earlier this year that, if elected, his government would maintain the State's tax competitiveness. But in the first Labour Budget in nine years, Treasurer Eric Ripper (or should that be Rip-Off) outlined plans to raise payroll and land taxes which will boost government coffers by millions of dollars.

Mr Ripper described the tax hikes as regrettable but he blamed the outgoing government which he said forced Labour to find an unexpected A$500 million in order to meet spending commitments. 'Labour's financial plan was not predicated on raising taxes. We had no intention of doing so and we promised that we would not. But we, and the rest of the community, were misled by the former government. I regret that it has become necessary for the Government to resort to tax increases - no matter how modest they may be - to meet the financial objectives which are critical to the long term sustainability of the State's financial position' said Mr Ripper in his Budget speech.

He added: 'Significantly, the revenue measures contained in this budget will be implemented without compromising the Government's commitment to maintain Western Australia's tax competitiveness. Western Australia will still be the lowest taxing State in the nation, in gross state product terms.'

The raised payroll tax provoked the State's business community to predict that it will force further unemployment in the region. Michael Chaney from the WA Chamber of Commerce and Industry (CCI) said he expects the tax to cost his company, Wesfarmers Ltd., at least A$1 million per year. 'I think it's a really bad decision,' he said, 'it's a disincentive to employ people at a time the economy is going into a quieter period. I don't think it was expected and I certainly don't think it's sensible.'

In his Budget speech, Mr Ripper explained that from 1 January 2002, the payroll tax base will be widened to the before-tax or 'grossed-up' component of taxable fringe benefits. And from 1 July 2002, the tax base will be extended further to include payments made under contracts for the labour of 'employee-like' contractors. Together, these payroll tax base broadening measures are likely to raise around $36 million in their first full year of operation.

From 1 January 2002 the top payroll tax rate will also increase by 0.44 percentage points from the current 5.56 per cent to 6.0 per cent which will raise a further $63 million in its first full year.

The land tax rate on property will increase from 1 July 2002. The rate will rise from 2 per cent to 2.3 per cent for land with an unimproved value between $2 million and $5 million, and from 2 per cent to 2.5 per cent for land with an unimproved value exceeding $5 million. The new land tax scale is estimated to raise net additional revenue of around $29 million in its first full year.

A 'Premium Property Tax' will also be imposed with effect from 1 January 2002. This tax will apply to principal places of residence with an unimproved land value in excess of $1 million, with this threshold to be indexed annually in line with the Perth Consumer Price Index. The tax applies only to the land component of the property - not the house, and the first $1 million is tax free. It is expected to broaden the State's tax base by around $12 million in 2001-02.

The WA CCI's chief executive, Lyndon Rowe, said businesses have no capacity left to weather the tax hikes. He commented: 'Let me assure the Premier that the WA business community has had a really hard time over the last two to three years. And if he thinks there's capacity in the business community to take increased charges at the moment, then he's wrong.'

Now what was that old saying about never trust a politician ....

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