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Reducing Vertical Fiscal Imbalance in Australia: Is There a Need for State Personal Income Taxation?

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Author Info

  • Row, Richard

    (Australian Housing & Urban Research Institute)

  • Duhs, Al

    (University of Queensland)

Abstract

Tax reform is back on the economic and political agendas. Two significant reports to governments in 1996 have highlighted deficiencies in the current arrangements. First, the Australian Productivity Commission (1996) has submitted to the Howard Government that there is a need for fundamental tax reform, given the inappropriate incentive and efficiency effects of the existing tax system. Secondly, the Queensland Commission of Audit has argued more specifically that “the degree of vertical fiscal imbalance (VFI) in the Australian Federation is extreme and dysfunctional”. The Commission adds that accountability of both State and Federal Governments is blurred in consequence, thereby reducing fiscal responsibility. Recent High Court decisions on the definition of excise taxes add further significance to the need for economic analysis of, and political debate of, plausible changes to Commonwealth-State financial relations. While the overall tax reform debate focuses on the issue of broadening the tax base, one specific issue important to the debate is VFI and the possible reassignment of Commonwealth and State taxes. In this context we argue that a State personal income tax surcharge would facilitate a reduction in the extent of VFI, and thus promote a more efficient economy and effective federation. Various tax options for reducing VFI are considered, along with implications for public sector accountability and efficiency.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 28 (1998)
Issue (Month): 1 (March)
Pages: 69-83

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Handle: RePEc:eap:articl:v:28:y:1998:i:1:p:69-83

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Keywords: Taxation;

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Cited by:
  1. Row, Richard & Duhs, Alan, 2001. "The National GST and Commonwealth-State Financial Relations: A Neglected Issue," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 31(1), pages 57-72, March.
  2. David Pickernell & Mark Mcgovern, 2002. "Begging Bowl Meets Baseball Bat? Lessons for the UK from the Australian Fiscal Model," Regional Studies, Taylor & Francis Journals, vol. 36(6), pages 703-707.

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