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The Productivity Commission says governments tend to “set and forget” industry levies, causing them to increase tenfold in the past few decades.
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Rein in levies or risk ‘death by a thousand micro-taxes’
14 December 2023
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Governments have lost track of hundreds of micro-taxes that weigh down businesses and harm the integrity of the tax system, the Productivity Commission says, with some that raise just handfuls of dollars a year.
They included five taxes on the slaughter and export of goats – one of which raised less than $26 in a year – and three on the slaughter of flightless birds that garnered around $4,000 each.
The commission found the number of levies had exploded tenfold since 1980, from just 26 to 248, but they contributed only 2 per cent of the country’s overall tax revenue.
Deputy chair Alex Robson said the levies were expensive to collect, distorted business activity and wasted the time and resources of businesses and government.
“Without anyone noticing, these micro-taxes have compounded into a bureaucratic ‘Levyathan’. Limiting their growth in favour of more efficient taxes is a simple, actionable reform that could make a material difference to productivity growth,” he said.
“If governments can’t restore policy discipline to the design and implementation of these levies, our chance of a more efficient tax system that fosters productivity growth risks death by a thousand micro-taxes.”
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The first levy was introduced in 1929 on wine grapes to fund viticulture research and development, but governments in the following decades began to use them in a range of sectors for reasons that extended beyond helping producers.
They had become the “default funding option” considered by policymakers to raise tax revenue and offset the cost of new policy proposals, viewed as less objectionable than a broader tax on households. This was because their direct impact would be less perceptible despite creating heavy indirect costs through an inefficient tax system, the report said.
“Policymakers may be using levies as a politically expedient way of raising additional revenue that can be managed by an individual portfolio minister or department, with little regard for the impact they may have on the tax system as a whole,” Mr Robson said.
Levies now exist for telecommunications, banking, insurance, energy, manufacturing, gambling, insurance and construction industries.
The report found a levy on major banks raised the most revenue each year at around $1.5 billion. Levies on “passenger movement”, fire services, waste and emergency management rounded out the top five.
Meanwhile, nearly 30 levies on activities ranging from the slaughter of goats, deer, emus, ostriches, marsupials, horses and pigs, to levies on seed varieties like Persian clover, snail medic, arrow leaf and yellow serrandella, failed to raise $10,000 apiece.
A levy charged on goats since 1993 raised the least at just $26 annually, but had cost authorities over $3 for every $100 they collected. The most expensive levy to administer was one for buffalo slaughter, costing authorities almost $8 for every $100 collected.
The commission said that while there was still positive evidence for supporting research and development in agriculture, it was unclear whether industry levies were helping. The effectiveness of non-agricultural levies was also difficult to gauge due to limited data.
However, the lack of an overarching view of the levy system has meant that there has been no coordination or consistent policy basis for their imposition among agencies, the report said. As a result, they worsened the tax burden on businesses, with the burden worse for national or interstate businesses due to inconsistent approaches between agencies.
“A set and forget strategy” is not optimal, it said.
Mr Robson said: “Without anyone noticing, these micro-taxes have compounded into a bureaucratic ‘Levyathan’. Limiting their growth in favour of more efficient taxes is a simple, actionable reform that could make a material difference to productivity growth.”
The commission recommended a uniform framework to assess levies that would involve considering the levy’s rationale, availability of alternatives, industry support and its potential economic benefits and costs.
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