Nsw Has Heaviest Tax Load: Study

Sydney Morning Herald

Monday December 29, 2008

Mark Davis Political Correspondent

NSW imposes the highest tax burden on business of all Australian states, discouraging firms from investing and expanding their activity in the state, according to a study.

The study, by the free market think tank the Institute of Public Affairs, finds a typical medium-sized business operating in NSW would pay $222,356 a year in state government taxes and charges.

The same business would pay $195,621 if it was in Western Australia, the lowest-taxing of all the state governments. The tax impost in NSW is 7 per cent above the average across all six states and 14 per cent above the WA figure.

One of the report's authors, the institute's research fellow Julie Novak, called on states to give a new priority to reforming business taxation because, as the economy slowed in coming months, such imposts would crimp investment and growth.

"NSW takes the unwanted title of Australia's high-tax state," Ms Novak said. "This is on top of a moribund state economy and underperforming government."

However, a spokesman for the Treasurer, Eric Roozendaal, disputed the institute's description, saying NSW was a middle-taxing state. The spokesman said NSW was on track to having the second-lowest level of total state government revenue per head of population in 2008-09 and would cut payroll tax for business from New Year's Day.

"From Thursday the payroll tax rate will be reduced from 6 per cent to 5.75 per cent, saving NSW business $114 million this financial year," the spokesman said. "This will reduce payroll tax for a business with a $1 million payroll by 4.2 per cent. This continued rollout of payroll tax cuts is ultimately the equivalent of injecting $1.9 billion into NSW business by 2011."

The institute's report calculated the tax liabilities in each state of a medium-sized company with annual profits of $5 million and 60 employees that sold some of its property during the year.

The main charges examined were payroll tax, land taxes, stamp duties on business transactions and motor vehicle registration fees.

NSW was followed as the highest taxing state by South Australia and Tasmania, and Queensland was the second-lowest.

The study found the levels of state taxes imposed differed significantly according to the size and industry of businesses. Construction and transport companies were the highest taxed, and services firms were the lowest.

It found transaction-based taxes, such as stamp duties on the sale or purchase of property, affected smaller businesses disproportionately.

"The reliance by state governments on taxes levied on transactions undertaken by companies inhibits economic growth because such taxes do not take account of business profitability," the report said.

"The structure of state business taxes should be reformed to encourage business development in a slowing economy with credit constraints."

© 2008 Sydney Morning Herald

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