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RevenuePaper.nt.gov.au
DEPARTMENT OFTREASURY AND FINANCE
Northern Territory RevenueDiscussion PaperNovember 2017
November 2017 | 1
ǀǀContents
1 ObjectivesoftheNorthernTerritoryRevenueDiscussionPaper 2
2 Consultationprocess 4
3 StructureandlimitationsofNorthernTerritoryrevenuesources 5
4 KeyfiscalandeconomicchallengesfacingtheNorthernTerritory 9
5 NorthernTerritoryown-sourcerevenue 12
6 Payroll tax 18
7 Property taxes 23
8 Gamblingtaxes 31
9 Motorvehicletaxes 36
10 Insuranceduty 40
11 Bankingtaxes 42
12 Mineralroyalties 44
13 Petroleumroyalties 51
14 Otherown-sourcerevenuebases 55
15 Recentstatetaxationreforms 57
2 | Northern Territory Revenue Discussion Paper
1 ObjectivesoftheNorthernTerritoryRevenueDiscussion Paper
1.1 WhyareweconsultingthecommunityabouttheTerritory’smain own-sourcerevenues?TheNorthernTerritoryreceivesthemajorityofitsrevenuefromtheCommonwealthGovernment,moresothantheotherstatesandterritories,boththroughGSTdistributionandtiedgrants.
Nevertheless,theimportanceoftheTerritoryhavingarobust,efficient,stableown-sourcerevenuebasehasneverbeenmoreapparentthanthroughthe2017BudgetperiodwhensignificantchangesinGSTrevenue,whicharebeyondthecontroloftheTerritory,substantiallyimpactedonGovernment’sabilitytoplananddeliveressentialservices.
TheTerritoryGovernmentwillcontinuetolobbytheAustralianGovernmenttoensuretheTerritoryreceivesitsfairshareoftheGST,alongwithcontinuingthedebatearoundnationaltaxreform.
Inthemeantime,itisimportanttheTerritoryconsidersimprovingitsown-sourcerevenuebase.TaxesandroyaltiesraisedbytheTerritorydirectlyassisttoprovideessentialgovernmentservicessuchashospitalsandhealthcare,policeandemergencyservices,education,familysupportandvitalinfrastructure.Fundingrequirementsfortheseservices,especiallyhealthandeducation,willcontinuetogrow,placingincreasingfiscalpressureontheTerritory.
Consequently,TerritorytaxesandroyaltiesmustprovidethefundingrequiredtocontinuetoprovidethequalitygovernmentservicesTerritoriansexpectanddeserve.Wemustraiserevenueinasustainablemannerthatdoesnotundulyimpedeinvestmentandbusinessdecisions,reducesredtapeandcomplianceeffort,andprovidesgovernmentwithstabilityandcertaintytoplanandbudget.
AnexaminationofTerritorytaxesandroyaltiesisnotsimplyaboutloweringorraisingtaxesorroyalties,orintroducingnewtaxesorabolishingcurrenttaxes.Itisaboutdevelopingtaxandroyaltysystemsthatraiseenoughrevenuetofundservicesandinfrastructurewhilebeingfairandefficient.BalancingtheseobjectivesisimportantinassistingtheTerritorytogrowandprosper.
1.2 ObjectivesandfiscalstrategyTheTerritoryGovernment’sfiscalstrategyinrespectofitsrevenuerequirementsistomaintainacompetitivetaxenvironmentthatencouragesinvestment,createsjobsandattractsbusinesstotheTerritory,whileraisingsufficientrevenuetocontributetofundinggovernmentservicedelivery.
Accordingly,Territorytaxesandroyaltiesneedto:
• deliversufficientrevenuenowandintothefuturetoallowGovernmenttodeliverservicesandinfrastructuretoTerritorians
• beasefficientandfairaspossible,makingsureeveryonecontributestothedevelopmentoftheTerritory,havingregardtotheircapacitytodoso
• beassimpleaspossibletominimisecomplianceandadministrationcosts
• beasstableandpredictableaspossiblesoGovernmentcanplanandbudgetforthefuture
• supportjobcreationandnotactasabarriertoinvestmentintheTerritorybyremainingcompetitivewiththeotherjurisdictions.
November 2017 | 3
TheseprinciplesarethefundamentalareasonwhichGovernmentwishestoengagewiththecommunitytodiscusstheTerritory’staxesandroyalties.
1.3 NatureoftheDiscussionPaperThisDiscussionPaperwillallowTerritorianstohavetheirsayonthefuturedevelopmentoftheTerritory’staxandroyaltypolicies.ThepaperprovidesasummaryoftheTerritory’staxandroyaltysystems,settingoutpolicyobjectives,alongwitheconomicefficienciesandinefficienciesofthecurrent system.
Thepaperalsoprovidesarangeofreformoptionsthatcouldbeconsidered,inordertoassistinstimulatingcommunityinputtogovernmentpolicy.TheseoptionsarenotrecommendationsanddonotreflectanypolicyproposaloftheGovernment.
4 | Northern Territory Revenue Discussion Paper
2 Consultationprocess
TheGovernmentencouragesinterestedpartiestomakeawrittensubmissionregardingthisDiscussionPaper.ThesesubmissionswillassistGovernmenttoprepareitstaxationandroyaltypolicies,considertheneedandappropriatenessforreform,andfeedintothedevelopmentofrevenueoptionsaspartofitsBudgetprocesses.
Inadditiontoseekingwrittensubmissions,publicconsultationwithinterestgroups,peakbodiesandthebroadercommunitywillaccompanytheDiscussionPaper.Thedatesofpublicconsultationwillbereleasedshortly.
2.1 KeydatesNovember2017: DiscussionPaperreleasedforconsultation
NovembertoJanuary2017: Engagementwithindustryandpeakbodies,publicinformationsessions
28February2018: Closingdateforwrittensubmissions
Anychangestothesedates,alongwithupdatesontimingofconsultationprocesses,willbeadvised on RevenuePaper.nt.gov.au
2.2 SubmissionsSubmissions can be lodged via the following methods:
Email: [email protected]
Mail: DepartmentofTreasuryandFinance Revenue Discussion Paper GPOBox154 DARWINNT0801
Hand delivery: DepartmentofTreasuryandFinance Revenue Discussion Paper Level14,CharlesDarwinCentre 19TheMall DARWINNT0801
AllsubmissionswillbepubliclyavailableandpublishedtothewebsiteRevenuePaper.nt.gov.au,unlessyouspecificallyrequestotherwiseinyoursubmission.
November 2017 | 5
3 StructureandlimitationsofNorthernTerritoryrevenue sources
3.1 NorthernTerritorysourcesofrevenueTheTerritory’stotalrevenuecomprises30percentown-sourcerevenueand70percentCommonwealthrevenue.Bycontrast,thesplitforotherjurisdictionsisabout55percentown-sourcerevenueand45percentCommonwealthrevenue.
TheTerritory’sown-sourcerevenueprimarilycomprisestaxesandroyalties,butalsoincludesfeesandcharges,rentandtenancyincome,interestanddividendrevenue,andprofitandlossonthedisposalofassets.Own-sourcerevenueprovidesfiscalautonomytotailorinfrastructureandservicestomeetajurisdiction’sneeds.
CommonwealthrevenueprovidedtotheTerritorycomprises:
• goodsandservicestax(GST),whichaccountsforabouthalfoftotalTerritoryrevenue
• tiedpayments,whichaccountforabout20percentoftotalTerritoryrevenue.
ThedifferenceintheimportanceofCommonwealthrevenuetotheTerritoryisdemonstratedinChart3.1,whichshowsstateandterritoryrevenuesbysource.
Chart3.1:StateandTerritoryRevenuesbySource,2015-16
Source:Commonwealth2015-16FinalBudgetOutcome;stateandterritory2015-16annualfinancialreportsor2016-17mid-yearreports
• TheTerritoryreceivesmostofitsrevenuefromtheCommonwealth,moresothantheotherstatesandtheAustralianCapitalTerritory.
• LikeotherstatesandtheAustralianCapitalTerritory,theTerritoryhaslimitedpowerstoimposeonlyanarrowrangeoftaxesandroyalties.
• ChangestoGSTdistribution,whichprovideshalfoftheTerritory'srevenue,havealargeimpactontheTerritory'sBudget.
0
20
40
60
80
100%
NSW Vic QldWA SA TasACT NT TotalOwn-source revenue GST Tied Commonwealth payments
6 | Northern Territory Revenue Discussion Paper
3.2 LimitationsontheTerritory’staxationandroyaltypowersTheTerritory,liketheotherstatesandtheAustralianCapitalTerritory,haslimitedpowerstoimposeonlyanarrowrangeoftaxesandroyalties,whereastheCommonwealthhasaccesstobroad,stablegrowthtaxes.However,statesandterritorieshaveprimaryresponsibilityfordeliveringthemajorityofgovernmentservices,suchashealthcare,education,andlawandorder.
Thismismatchbetweentherevenue-raisingpowersoftheCommonwealthandservicedeliveryresponsibilitiesofthestatesisreferredtoasverticalfiscalimbalance.ItisthereasonstatesandterritoriesneedtorelyonCommonwealthrevenuetodeliverservices.
Table3.1:LimitationsonNorthernTerritorytaxingpowers
Taxes the Territory can imposeCommonwealthtaxes,whichcan’tbeimposed
by the Territory Government
• Payroll tax
• Stampdutiesonpropertyandinsurance
• Land tax
• Gamblingtaxes
• Feesandcharges,forexample,motorvehicleregistrationfees
• Miningroyalties(exceptonuranium)
• Onshorepetroleumroyalties(butnotonoffshoreproduction)
• Consumptiontaxes,forexample,GST
• Company taxes
• Personal income taxes
• Offshorepetroleumroyalties,forexample,the Petroleum Resource Rent Tax that appliestotheINPEXproject
• Sales taxes
• Customsandexciseduties,forexample,taxesontobacco,alcoholandpetrol
AssetoutinChart3.2,thislimitationonstateandterritorytaxpowersmeansstatesandterritoriesareresponsibleforabout42percentoftotalgovernmentexpenditurebutonlyraiseabout25percentoftotalrevenue.Bycomparison,theCommonwealthraisesabout75percentoftotalnationalrevenuebutitsexpenditureobligationsamounttoabout58percentoftotalexpenditure.
Chart3.2:VerticalFiscalImbalance2015-16
Source:Commonwealth2015-16FinalBudgetOutcome;stateandterritory2015-16annualfinancialreportsor2016-17mid-yearreports
DuetothisimbalancebetweenthetwolevelsofgovernmentsthereisaneedforrevenuetobetransferredfromtheCommonwealthtothestatestoensuregovernmentservicescancontinuetobedelivered,whichtakestheformofGSTrevenueandtiedpayments.
0102030405060708090
100
Revenue ExpenditureCommonwealth States
Vertical fiscalimbalance
%
November 2017 | 7
3.3 ConstraintsonCommonwealthrevenuetotheTerritory3.3.1 Constraints to the GSTGSTisaconsumptiontaxand,becauseithasamuchbroaderbasethanmostothertaxes,isconsideredaneconomicallyefficienttax.However,theGSTcouldprovidegreaterrevenuetostatesand territories.
Australia’sGSTrateis10percent,oneofthelowestamongdevelopedcountries.TheGSThassignificantexemptionsforfreshfood,health-relatedservices,education,childcareandutilitiesservices,whichbenefitconsumersbutreduceGSTrevenueandaddcomplexityandcoststobusiness.
Only49percentofAustralia’snationalconsumptionissubjecttoGST,comparedtotheOECDaverageconsumptiontaxationratioof56percent,or55percentinGermany,71percentinSwitzerlandand97percentinNewZealand.
Furthermore,sincetheintroductionofGSTinJuly2000,therehasbeenanotableshiftinconsumerspendingpatternsfromitemsthatattractGSTtothosethatareGST-exempt,notablyeducationandhealth-relatedservices.
TheseexemptionsandchangedconsumerhabitshaveresultedinamoderationinthegrowthofGSTcollections.IntheinitialyearsofGSTtheaverageannualgrowthrateofcollectionswasaround8.2percent.Morerecently,averageannualgrowthhasbeenaround3.9percent.
RegardlessofwhetherchangestoGSTwouldbeunanimouslysupportedbystates,thecurrentCommonwealthGovernmenthasmadeitcleartherewillbenochangetoGST–baseorrate–duringthistermofGovernment.
TheTerritoryfacesriskstoitsshareofGSTcollectionsasaresultofthefactorstakenintoaccountincalculatingstates’shares.
BesidesthegrowthintheamountofnationalGSTcollections,theotherparametersthatinfluencetheamountofGSTreceivedbytheTerritoryareGSTrelativitiesassessedbytheCommonwealthGrantsCommissionandtheTerritory’sshareofthenationalpopulation.
ThechallengesfacingtheTerritoryregardingpopulationgrowthareaddressedinChapter4.CombinedwithadeclineintheTerritory’sshareofnationalpopulation,asignificantreductionintheTerritory’sGSTrelativityin2017hadthesignificanteffectofreducingtheTerritory’sexpectedGSTreceiptsby$2billionovertheforwardestimates,withGSTrevenuenotexpectedtoreturnto2016-17levelsuntil2020-21.ThisissetoutinChart3.3below.
Chart3.3:VariationstoGSTrevenuesinceAugust2016Pre-ElectionFiscalOutlook
Source:NorthernTerritory2017-18BudgetPaperNo.2BudgetStrategyandOutlook
2800
3000
3200
3400
3600
3800
4000
2017 2018 2019 2020 2021
2016 Pre-ElectionFiscal Outlook
2017-18 Budget
($M)
Year ended June
8 | Northern Territory Revenue Discussion Paper
3.3.2 Constraints to tied Commonwealth paymentsTiedCommonwealthpaymentsareprovidedtosupporttheachievementofoutcomesinaparticularsector,deliveryofspecifiedprojectsortofacilitatenationalreforms.Theyaregenerallysubjecttoachievingdefinedmilestonesorperformancebenchmarksandareoftentimelimited.Assuch,theycannotbereliedonasaguaranteedongoingsourceofrevenueforthestates.
Inaddition,tiedpaymentsareoftenprovidedtopursueCommonwealthGovernmentpriorities,whichmaynotalwaysalignwiththeTerritory’spriorities.
TherehasbeenincreasinguncertaintyaroundCommonwealthfundinginrecentyearswiththeCommonwealthpreferringnottocommittofundingformostNationalPartnershipAgreementsbeyondonetotwoyears;reducingorterminatingNationalPartnerships;andintroducinginputcontrolsandgreaterlevelsofprescriptionthatimpactstates’autonomytodeliverservicesforwhichtheyareresponsible.
WithoutsustainableCommonwealthpayments,bothtiedandgeneralrevenueassistance,theTerritorywouldneedtoapplyahighertaxburdenonitscitizensorraisesignificantlevelsofdebtinordertomaintainexistingservicedeliverylevels.Alternatively,itwouldneedtoreducethelevelofservice delivery.
3.4 NationaltaxreformStatesandtheCommonwealthcontinuetoinvestigatearangeofCommonwealthandstatetaxandrevenuereformoptions,includingproposalstoshareCommonwealthpersonalincometaxrevenuewiththestates.Itishopedthisworkwillidentifyanappropriatemeasurethatwill:
• providestateswithaccesstoabroadrevenuebasethatgrowsinlinewiththeeconomy
• reducethenumberoftiedCommonwealthgrantstothestates,providingthemwithgreaterautonomyandreducingadministrativeburden
• createflexibilityforstatestomeettheirongoingexpenditureneeds.
November 2017 | 9
4 KeyfiscalandeconomicchallengesfacingtheNorthern Territory
4.1 KeyfiscalpressuresHealth,education,publicorderandsafety,andhousingandcommunityamenitiescomprisetwothirdsoftheTerritoryBudgetandaresubjecttothegreatestfiscalpressuresarisingfromgrowthinbothdemandandthecostofprovidingthoseservices.
TheTerritoryhasasmallpopulationdispersedoveralargelandmassthatisisolatedfromAustralia’smainpopulationcentres.Aboriginalpeople,whocomprisearound30percentoftheTerritory’spopulation,tendtoliveinmoreremoteareasandusemainstreamservicesmoreintensivelycomparedtothenon-Aboriginalpopulation.
ThesefactorsaffectboththedemandforandcostofgovernmentservicesandresultintheTerritoryneedingtospendmorethandoublepercapitaongovernmentservicesthantheaverageoftheotherjurisdictions.ThisisdemonstratedinTable4.1
Table4.1:Generalgovernmentoperatingexpensespercapita,2015-16($)
NT ACT TAS WA SA QLD VIC NSW
24009 12536 10448 11140 9976 10251 8725 9328
Source:ABS,GovernmentFinanceStatistics,Australia2015-16,April2017.ABS,AustralianDemographicStatistics,December 2016
ChangestotheleveloftiedCommonwealthpaymentsandthedeclininggrowthinGSTcollectionsarebothcontributingtothefiscalpressuresexperiencedbystates.Asaresult,Commonwealthfundingisnotexpectedtogrowinlinewithdemandforservices,particularlyhealthcareandeducation,overthemediumtolongterm.
Sincethe2014-15CommonwealthBudgettherehasbeensignificantuncertaintyaroundtheCommonwealth’sfuturefundingforhealthandeducation,withaproposaltomoveawayfromactivityorneeds-basedfundingtoaflatindexationarrangement.Indexationislikelytoresultinashortfallforjurisdictionswithhigherdemandgrowth,includingtheTerritory.Accordingly,theTerritoryisfacedwithsignificantfundinguncertaintyinthelongterm.
• TheTerritorydeliversthesamescopeofservicesasthoseprovidedbyotherstatesbutfaceshigherdemandandservicedeliverycosts.
• DemandfortheseservicesisexpectedtooutpaceCommonwealthfundinggrowthoverthemediumtolongterm.
• TheTerritorycontinuestoneedtoinvestinclosingthegapinoutcomesbetweenAboriginalandnon-AboriginalTerritorians.
• TheTerritoryhasasmall,openeconomythatissignificantlyinfluencedbymajorprojectsandcyclicalsectorssuchasminingandconstruction.Thisresultsingreaterrevenuevolatilitythan other states.
• LowpopulationgrowthmaynegativelyaffecttheTerritory’sshareofGST.
10 | Northern Territory Revenue Discussion Paper
Inaddition,inits2017-18Budget,theCommonwealthannouncedtheQualitySchoolsfundingandreformpackage2018-2027.Underthispackage,theleveloffundingforTerritorygovernmentschoolswillbelessthanundertheexistingarrangements.
Thesefiscalpressuresareexpectedtobefurthercompoundedby:
• challengingeconomicconditions
• theTerritory’spossibleexpenditurecommitmentsundertheNationalDisabilityInsuranceScheme
• costsofanyreformsundertakeninresponsetofindingsoftheRoyalCommissionintotheProtectionandDetentionofChildrenintheNorthernTerritory.
4.2 PopulationanddemographicchangeFiscalpressureswillbeinfluencedbydemographicchangeintheTerritory,withthemainfactorsbeing:
• thecontinuedhighproportionofthepopulationthatisAboriginalorwholiveinremoteareas
• slowoverallpopulationgrowthintheshorttomediumterm
• anageingpopulation.
AsatJune2016therewereapproximately10.4peopleofworkingage(15to64)foreveryonepersonaged65andoverintheTerritory,comparedtoaratioof4.3nationally.However,theTerritorypopulationisprojectedtoageinthefuture.AnolderpopulationbasecanimpactontheTerritorybudgetthroughincreaseddemandforservices,especiallyhealthcare,andareductioninthesizeofthepotentialtaxbase.
ItisexpectedthattheTerritory’spopulationgrowthwillcontinuetobeslowintheshortterm.ThisincludestheeffectofaproportionofresidentconstructionworkersdepartingtheTerritorywhentheINPEXprojecttransitionsfromtheconstructiontooperationalphase.
4.3 EconomyTheminingandconstructionsectorsaretwoofthelargestcontributorstoTerritorygrossstateproduct(GSP).Botharecyclicalindustries,whichleadstovariationsintheirlevelofcontributiontotheeconomy,whichcanexacerbatefiscalpressures.
TheminingandconstructionindustrieswerekeycontributorsofeconomicgrowthintheTerritoryduringtheminingboom.Futuregrowthprospectsfortheseindustriesisreliantonoverseasdemandandinvestment,andsubjecttomovementinglobalcommoditypricesandtheexchangerate.
November 2017 | 11
Chart4.1:Territoryindustryproportionofgrossstateproduct
Source:ABSCatNo.5220.0
TheoutlookforthestructureoftheTerritoryeconomywillbeheavilyinfluencedbythetransitionoftheINPEXprojectfromtheconstructiontoproductionandexportphase.
AsexportsarenotsubjecttoGST,thegrowthintheTerritoryeconomydrivenbyexportsfromtheINPEXprojectmaynotcorrespondtoanincreaseintheTerritory’scontributiontothetotalrevenuecollectedthroughGST.Also,offshoregasisnotsubjecttoroyaltiesintheTerritory.
Inrecentyears,therehasbeenaclearshiftintheTerritoryandnationallytowardspart-timeemploymentasastrongercontributortoemploymentgrowththanpreviousyears(Chart4.2).Thismayindicatepayrolltaxandconveyancedutyrevenuemaygrowataslowerratethanpreviouslyasmorepeopleareemployedonapart-timebasisratherthanafull-timebasis.
Chart4.2:Territoryfull-timeandpart-timeemployment(year-on-yearchange)
Source:ABSCat.No.6202.0
25%
20%
18%
16%
14%
4% 3%
Other services
Government and community services
Construction
Mining and manufacturing
Non-industry
Retail and wholesale trade
Agriculture, forestry and fisheries
-10
-5
0
5
10
15
20
07 08 09 10 11 12 13 14 15 16 17 18Year ended June
%
Part-time employmentFull-time employment
12 | Northern Territory Revenue Discussion Paper
5 NorthernTerritoryown-sourcerevenue
5.1 Componentsofown-sourcerevenueTerritoryown‑sourcerevenuepredominantlycomprisestaxesandminingrevenuebutalsoincludesfeesandcharges,rentandtenancyincome,interestanddividendrevenue,andprofitandlossonthedisposalofgovernmentassets.
TaxationandminingroyaltiesareanimportantrevenuesourcefortheTerritory.In2016-17,own-sourcetaxationandminingroyaltiescontributedover$768millionofTerritoryrevenue.TaxationandroyaltyreceiptsarethesecondlargestrevenuesourcefortheTerritorybehindGSTgrants.
Themaincontributorstoown-sourcerevenuearetaxesonemployers(payrolltax)at$313millionoralmost40per cent,miningandpetroleumroyaltiesat$165million,or21percent,andtaxesonproperty(conveyancestampduty)at$105million,or14percent.ThisissetoutinChart5.1below.
Chart5.1Mainown-sourcerevenuecategories,2016-17
Source:DepartmentofTreasuryandFinance
• TheTerritoryleviessimilartaxesandroyaltiesastheotherstatesandtheAustralianCapitalTerritory.
• Territorytaxesandroyaltiesaregenerallyvolatileanddifficulttoforecast.
• Inaggregate,Territoryown-sourcerevenuesareamongthelowestinAustralia.
$313M
$165M
$105M
$72M
$70M
$43M
Payroll tax
Mining and petroleum royalties
Conveyance stamp duty
Gambling taxes
Motor vehicle taxes
Insurance duty
November 2017 | 13
Table5.1summarisestaxationreceiptsfor2016-17andforecastsfortheforwardestimatesperiod.
Table5.1Own-sourcerevenuecollectionsandforecasts
Mainown-source revenuecategories 2016-17 2017-18 2018-19 2019-20 2020-21
$000 $000 $000 $000 $000
Miningroyalties 165378 225037 175438 175438 175438
Taxes on employers 313156 260 030 248716 257410 263845
Taxes on property 105096 103532 106444 109423 112146
Taxesongambling 71615 78 016 82 676 85867 89198
Motorvehicletaxes 70 371 76 713 79306 81992 84755
Taxes on insurance 42851 39255 40040 40841 41658
Total 768 467 782 583 732 620 750 971 767 040
Source:DepartmentofTreasuryandFinance
5.2 Factorsaffectingmainown-sourcerevenuebasesIdeally,own-sourcerevenuewouldbebroadlypredictableandgrowatasimilarratetotheeconomy,providingfundingcertaintyforservicedelivery.However,someoftheTerritory’sown-sourcerevenuesourcescanfluctuatesignificantlyfromyeartoyear.Asidefromshort-termvariability,long-termgrowthinrevenuesalsovaries,withsomerevenuelineshistoricallygrowingfasterorslowerthanothers.
TaxesthatvarystronglyfromyeartoyeararemoredifficulttoforecastaccuratelyandmakeitdifficultfortheTerritorytoplanfuturespending.
5.2.1 Payroll taxPayrolltaxrevenuetendstobeinfluencedbybroadeconomictrends,whichaffectemploymentsuchasemploymentgrowth,wagesgrowth,compositionofpartandfull-timeemploymentandaveragehoursworked.Broadly,payrolltaxrevenueisexpectedtogrowinlinewithgrossstateproduct(GSP)andtoberelativelystable,whichallowsforecastingofthisrevenuebasetobereasonablyaccurateandprovidesareliablesourceofrevenuetofundgovernmentexpenditure.
However,twofactorsaffectthisstabilityandpredictabilityintheTerritory.First,theTerritoryhistoricallyhasbeendependentonmajorcapitalprojectsforalargeproportionofitseconomicgrowth.Thiscanleadtopeaksandtroughsinresidentemploymentbetweenmajorprojectsandtothecontributionofwagespaidtofly-infly-out(FIFO)workerstopayrolltaxrevenue.
Second,duetotheTerritory’shigh$1.5milliontax-freethreshold,compositionalchangesinemploymentbetweensmallandlargefirmscanaffectpayrolltaxreceiptsinamannerinconsistentwitheconomicgrowthtrends.Forexample,ariseinsmallbusinessemploymentmaynotcorrespondwithanincreaseinpayrolltaxrevenue.
5.2.2 Conveyance stamp dutyConveyancestampdutyrevenueislinkedtothevolumeandpricesofresidentialandcommercialpropertymarkets,whichcanvarysignificantlyfromyeartoyearandareoftenaffectedbythecommencementorcessationoflargeprojects.
14 | Northern Territory Revenue Discussion Paper
Conveyancedutyreceiptsvaryyeartoyearduetolargeone-offreceiptsfromsignficantcommercialtransactions,suchasthesaleofminesorpastoralproperties.Forexample,in2014-15,afewlargecommercialtransactionssawconveyancestampdutyrevenueincreaseto$265millioncomparedto$142millioninthepreviousyearand$114millioninthesubsequentyear.
5.2.3 Mining and petroleum royalties MiningroyaltiesintheTerritoryaregenerallypayableunderaprofit-basedschemesetoutintheMineral Royalty Act.Onshorepetroleumroyaltyispayablebasedonthevalueofthepetroleumatthepointofextraction.
WithonlyasmallnumberofminersintheTerritory,materialchangestotheprofitabilityofasingleminercanhaveasignificanteffectonminingroyaltyreceipts.Accordingly,forecastingroyaltyreceiptsisreliantonadvicefromminingcompaniesandpetroleumproducersofestimatedliabilityandcommoditypricemovements,productionlevelsandthevalueoftheAustraliandollar.
5.3 Own-sourcerevenuestabilityInaggregate,theTerritory’sown-sourcerevenuescanbechallengingtoforecastaccurately,largelyasaresultofthevariabilityofconveyancedutyandroyalties,whichmakesitdifficultfortheGovernmenttobudgetandplanforthefuture.Althoughpayrolltaxisacomparativelystablesourceofrevenue,evensmallpercentagechangescanhaveasignificantimpactontotalrevenues,aspayrolltaxisthelargestcontributortoown-sourcerevenue.
Chart5.2:VariationsingrowthofTerritoryown-sourcerevenuecomponentsovertime
Source:DepartmentofTreasuryandFinance
5.4 Interstate comparisonsInterstatecomparisonsoftaxarrangements,includingthoseundertakenbytheCommonwealthGrantsCommission(CGC),PitcherPartnersandtheInstituteofPublicAffairs(IPA),haveoftenshownthattheTerritoryisthelowestorsecondlowesttaxingjurisdiction.
ThisisparticularlytrueforrecurrentbusinesstaxesbecausetheTerritoryistheonlyjurisdictionthatdoesnotimposealandtax.Althoughthismaybeanattractivearrangementformanybusinesses,itisunlikelytoencouragebusinessestomovetheirheadofficestotheTerritory.
-50-40-30-20-10
010203040%
Total taxation
Chan
ge fr
om p
revi
ous y
ear
Payroll tax Conveyance dutyYear ended June
Royalties
135%83%
08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17 08 09 10 11 12 13 14 15 16 17
November 2017 | 15
5.4.1 Taxation as a percentage of gross state productTaxationasapercentageofGSPisonewaytomeasurethegrossamountoftaxrevenuecollectedbyajurisdictioncomparedtothesizeofthatjurisdiction’seconomy.Basedon2015-16data(thelatestavailable),theTerritoryhadthelowesttaxtoGSPratioinAustralia.ThisissetoutinTable5.2.
Table5.2:TaxationasapercentageofGSP
JurisdictionTaxationasapercentage ofGSP(2015-16) Rank
NewSouthWales 5.5% 8
Victoria 5.3% 7
SouthAustralia 4.4% 6
AustralianCapitalTerritory 4.3% 5
Tasmania 4.1% 4
Queensland 4.0% 3
WesternAustralia 3.8% 2
Northern Territory 2.6% 1
Source:ABS,DepartmentofTreasuryandFinance
TherearesomelimitationswhencomparingtaxationasapercentageofGSP.IntheTerritory,somesectors(inparticular,theprocessingandexportofnaturalgasfromoffshorefields)contributeheavilytoGSPbutarenotdirectlysubjecttoTerritorytaxation(inthecaseofoffshoregas,thisistaxedbytheCommonwealth).ThispartlyexplainstheTerritory’slowtaxationtoGSPratio.
5.4.2 Taxation per capitaTaxationpercapitaisameasurethatcomparestaxationreceiptswithajurisdiction’spopulation.Itprovidesausefulindicationoftheoverallleveloftaxation.However,itdoesnottakeintoaccountthedistributionofwhopaystax.Onthismeasure,assetoutinTable 5.3,theTerritoryhadthesecondlowesttaxpercapitaratioin2015-16(thelatestavailabledata).
Table5.3:Taxationpercapita(2015-16)
Jurisdiction $ per capita Rank
AustralianCapitalTerritory 3919 8
NewSouthWales 3 880 7
WesternAustralia 3526 6
Victoria 3 280 5
Queensland 2605 4
SouthAustralia 2592 3
Northern Territory 2478 2
Tasmania 2 068 1
Allstates 3290
Source:ABS,DepartmentofTreasuryandFinance
16 | Northern Territory Revenue Discussion Paper
5.4.3 Commonwealth Grants Commission tax effort ratiosTheCGCassesseseachstate’srevenue-raisingeffortonanannualbasis.RevenueeffortistheratiooftheactualamountofrevenueastateraisestotheamountoftaxrevenuetheCGCassessescouldberaisedifthestateappliednationalaveragetaxratestoitstaxbase.
Underthisassessment,theTerritoryhasthelowesttotaltaxationeffort.Table5.4reflectsthisassessment.
Table5.4:CommonwealthGrantCommissionassessmentsofrevenueeffort(2017UpdateReport)
NSW Vic Qld WA SA Tas ACT NT NT Rank
Miningrevenue 100.8 47.7 105.6 99.0 81.0 56.2 n/a 129.2 7
Payroll tax 101.8 100.9 91.1 106.0 87.1 106.3 132.2 106.9 7
Stamp duty 100.0 104.9 86.7 113.1 105.8 88.7 88.9 105.0 6
Insurance tax 110.5 95.9 77.8 115.7 116.6 113.2 29.0 77.6 2
Motortaxes 121.2 81.3 104.4 100.2 80.5 72.9 111.0 65.5 1
Land tax 80.2 114.1 96.5 116.9 138.9 115.7 182.5 0.0 1
Total tax revenue 105.1 101.2 87.7 102.2 102.6 90.2 101.7 85.4 1
Total revenue 97.5 95.3 105.8 103.0 99.8 83.2 152.0 95.2 2
Source:CGC2017Update
5.4.4 Business tax costs modelsComparisonsofstateandterritorytaxesareundertakenbyarangeoffirms,peakbodiesandpolicyinstitutes.AcomparisonofstatetaxesbasedonthemethodologyoftworeasonablyrecentstatetaxmodelsindicatesthattheTerritorygenerallyhasthelowestbusinesstaxcosts.
Pitcher PartnersThePitcherPartners'StateTaxReview2014-15comparedtaxespayableandothercostsbysmalltomedium-sizedcompaniesineachstate.TheNorthernTerritory,AustralianCapitalTerritoryandTasmaniawerenotincludedintheoriginalanalysis.However,usingPitcherPartners'methodologyandupdatingitwith2017-18data,theanalysis(setoutinTable5.5)showsthattheTerritoryisgenerallyalowtaxingjurisdiction.
Table5.5:BusinesstaxationcostsusingPitcherPartners'StateTaxReviewmethodology(2017-18)
Scenario1:Businesswithpayrollsize$1225564 Scenario2:Businesswithpayrollsize$6010000Aggregatetaxesandcharges(purchaseof
property)Aggregatetaxesandcharges(renting)
Aggregatetaxesandcharges(purchaseof
property)Aggregatetaxesandcharges(renting)
State Total($) Rank Total($) Rank Total($) Rank Total($) Rank
NSW 175061 6 43076 4 1148548 6 370 810 3
VIC 142920 4 44717 5 884593 3 337 620 1
QLD 113 618 3 22 162 1 915890 4 357595 2
SA 75155 1 54864 6 569740 1 384990 4
WA 150678 5 41471 3 1045541 5 409203 5
NT 80 306 2 23 286 2 773572 2 424253 6
Source:DepartmentofTreasuryandFinance
November 2017 | 17
Inallscenariosbutone,theTerritoryisthesecondlowestbusinesstaxingjurisdiction(withtheexceptionoflargerbusinessesthatchoosetorentratherthanpurchasetheirpremises).ThislargelyreflectsthattheTerritorydoesnotimposealandtax.
Forasmallbusiness(scenario1),Territorytaxislowerbecauseabusinesswithapayrolloflessthan$1.5millionintheTerritorywouldbeexemptfrompayingpayrolltax.ThisisduetotheTerritory'srelativelyhighpayrolltaxtax-freethresholdcomparedtomostotherstates.
Foralargerbusiness(scenario2),theTerritoryrankedsecondforbusinessespurchasingtheirpremiseslargelyduetothefactlandtaxisnotimposed.ThisisoffsetbytherelativelyhighpayrolltaxpayablebyabusinessofthissizeintheTerritory.
Institute of Public Affairs (IPA)TheIPABusinessBearingtheBurden2012reportcomparedthetaxationcostsassociatedwithrunningarangeofbusinesssizesineachstate.ArangeofbusinesssizesareusedbasedontheparametersoftheWorldBank’sstandardcasestudycompany.
Table5.6:BusinesstaxationcostsusingIPABusinessBearingtheBurden2012methodology(2017-18)
Business size1
10% 50% 100% 200%Taxpaid($) Ranking Taxpaid($) Ranking Taxpaid($) Ranking Taxpaid($) Ranking
NSW 4201 7 117501 8 284561 8 622 222 7
Vic 2 027 3 97292 3 231 311 2 518545 1
Qld 3 032 6 98047 4 264048 4 546381 3
WA 1407 2 104591 6 272468 5 607651 5
SA 2572 4 109396 7 276993 6 615183 6
Tas 4988 8 100274 5 280 210 7 640083 8
ACT 2691 5 39638 1 216698 1 571226 4
NT 1 171 1 65568 2 234261 3 544500 2
Average 2 761 91538 257569 583224
1 Compared to World Bank case study company.Source:DepartmentofTreasuryandFinance
UsingtheIPAmethodologyfor2017-18,theTerritoryhasabelowaveragetaxpayableforeachbusiness.ThisisconsistentwiththeresultsusingthePitcherPartners'methodology,discussedabove.
18 | Northern Territory Revenue Discussion Paper
6 Payroll tax
6.1 PayrolltaxoverviewPayrolltaxisthemostsignificantsourceofTerritoryown-sourcetaxrevenue.In2016-17,Territorypayrolltaxrevenuewasabout$313million,orabout40 percentofown-sourcetaxandroyaltyrevenue.AsdiscussedinChapter5,itisalsooneofthemoreefficientandstabletaxes,althoughitcanbeheavilyinfluencedbymajorprojects.
PayrolltaxispayableintheTerritorywhenthetotalannualAustralianwagesofanemployerexceedstheTerritory’s$1.5milliontax-freethresholdamount.Thethresholdreducesproportionatelyifanemployerpayswagesinanotherstateorterritory.
Thethresholdamountisadeductionfromtaxablewages,whichoperatessobusinesseswithtotalAustralianwagesofupto$1.5millioninafinancialyeardonotpayanypayrolltax.
Thedeductionreducesby$1forevery$4inwagespaidbyanemployerabovethe$1.5millionthreshold.Thismeansanemployerwhopayswagesof$7.5millionormoredoesnotreceiveadeductionandpaystaxbasedontheirtotaltaxablewages.
Afterapplyingthededuction,payrolltaxiscalculatedattherateof5.5percentontaxablewagespaidbyanemployerforservicesrenderedbyemployeesintheTerritory.Payrolltaxisgenerallypaidmonthlyandcalculatedbasedonwagespaidinthepreviousmonth.
Payrolltaxappliestomostemployeeremunerationincludingwagesandsalaries,commissions,bonuses,allowances,employer-fundedsuperannuationbenefits,terminationpayments,mostleavepaymentsandthegrossed-upvalueoffringebenefits.
In2009,theTerritoryintroducedpayrolltaxlegislationharmonisedwiththatofmostotherstatesandtheAustralianCapitalTerritory.Asaresult,payrolltaxlegislationinterstatehasthesamerules.ThiswasdonetosimplifyadministrationandcomplianceandsignificantlyreduceredtapeforbusinessesoperatingintheTerritoryandotherjurisdictions.However,taxratesandthresholdsstilldifferbetweenjurisdictions.
• PayrolltaxisthelargestsourceofTerritoryown-sourcerevenue.
• PayrolltaxisthemoststableandpredictableTerritorytax,althoughitcanvarywiththecommencementandendoflargeprojects.
• Payrolltaxhaseconomicimpactssimilartoconsumptiontaxes,isanefficienttax,andhasrulesthatarelargelyharmonisedwiththeotherstates.
• Territorypayrolltaxhasahightax-freethresholdthatensuresmostlocalbusinessesdonotpaypayrolltax,coupledwitharelativelyhightaxrate.
• Reformstopayrolltaxmayfocusonrateandthresholdchanges,andshouldbalancetheinterestsofTerritorybusinesseswiththeimportanceofpayrolltaxasarevenuesource.
November 2017 | 19
6.2 WhopayspayrolltaxintheNorthernTerritory?ThepayrolltaxpolicysettingintheTerritoryisahightax-freethresholdthatmeansthemajorityofsmalllocalTerritorybusinessesdonothavetoregisterfororpaypayrolltax.Italsosignificantlyreducesthetaxpayablebyslightlylargerlocalbusinesses.
Payrolltaxisimposedonemployers.Althoughpayrolltaxisoftenregardedasa‘taxonjobs’andadisincentivetoemploy,studiesindicatethatpayrolltaxeshavesimilareconomicconsequencestoconsumptiontaxessuchastheGST,andgenerallydonotresultinlowerprofitsforbusinesses.
PayrolltaxisgenerallyseenasanefficientsourceofTerritoryrevenue,withrevenuegrowthwhenwagesandemploymentgrow.
6.2.1 Tax-free thresholdTheTerritory’shightax-freethresholdmeansthetaxbaseissmallerandahighertaxrateisrequiredtoachievethedesiredrevenueoutcome.Largerbusinesseswillhaveapayrolltaxliabilitywhileothers,includingsmallermarketcompetitors,willnot.Someemployerswithtaxablewagesclosetothe$1.5millionthresholdmayalsoperceivepayrolltaxasadisincentivetoengagingadditionalemployees.However,payrolltaxisonlypayableonthetaxablewagesthatexceedthetax-freethreshold.
ItisalsoimportanttorecognisethatTerritorytaxesareonlyareasonablysmallproportionofoverallbusinesscosts.Businessesconsiderallcostsarisingfromstartingorexpandingabusinessanddonotbasetheirlocationdecisionssolelyontaxconsiderations.
Table6.1showstheeffectoftheTerritory’s$1.5milliontax-freethreshold,withabout2400employersregisteredforpayrolltaxintheTerritory,comparedtoatotalof14300businessesoperatingintheTerritory.
Table6.1:PayrolltaxpayingbusinessescomparedtototalTerritorybusinesses
Number
EmployersregisteredtopayTerritorypayrolltax(30June2016) 2471
EmployingbusinessesintheTerritory(ABSestimate) 5854
TotalbusinessesoperatingintheTerritory(ABSestimate) 14 310
Source:ABSCat.No.8165.0CountsofAustralianBusinesses,includingEntriesandExits,June2012toJune2016
Table6.2demonstratesmostbusinessesthatpayTerritorypayrolltaxarelargenationalorinternationalcompanieswithwagesinexcessof$7.5million.Incontrast,only383(about15percent)ofpayrolltax-payingbusinessesareTerritoryfirms.
Table6.2:Businessespayingpayrolltax(30June2016)
Annualwages Interstate Local Total
<$7.5M 413 259 672
>$7.5M 1675 124 1799
Total 2 088 383 2471
Source:DepartmentofTreasuryandFinance
20 | Northern Territory Revenue Discussion Paper
6.2.2 ExemptionsWagespaidbymostnon-profitorganisationsrunforacharitablepurpose,religiousorpublicbenevolentinstitutions,someschoolsandeducationproviders,andhealthserviceprovidersareexemptfrompayrolltax.Exemptionsarealsoprovidedtobusinessesinrespectofwagespaidtoemployeesonmaternity,paternityandadoptionleaveorwhenvolunteeringasfirefightersandemergencyservicevolunteers.AsmostTerritorybusinessesarenotsubjecttopayrolltax,payrolltaxexemptionsprimarilybenefitlargeinterstateemployers.
6.3 Interstate comparisonTables6.3and6.4setoutacomparisonofthetaxratesandtax-freethresholdsofstatesandterritories,withTable6.4providingtheeffectivepayrolltaxrateatvariouswagelevelsforeachjurisdictionafterconsideringindividualstatethresholdsandtaxrates.
AsaresultoftheNorthernTerritory’shighthresholdandaveragepayrolltaxrate,theTerritoryimposeslowerthanaveragepayrolltaxesuptoabout$3millioninwages.However,forbusinesseswithabout$4millionormoreinwages,theTerritory’spayrolltaxschemehasaneffectivetaxrateabovethenationalaverage.
Table6.3:Stateandterritorypayrolltaxratesandannualthresholds
NSW Vic1 Qld2 WA3 SA4 Tas ACT NT3 Average
Threshold($M) 0.75 0.63 1.10 0.85 0.60 1.25 2.00 1.50 1.08
Rate(%) 5.45 4.85 4.75 5.50 4.95 6.10 6.85 5.50 5.49
1Arateof3.65 per centappliesforregionalVictorianemployers.2 Thresholdreducesaswagesincrease,sonoexemptionisprovidedforemployerswithwagesover$5.5million.3 Thresholdreducesaswagesincrease,sonoexemptionisprovidedforemployerswithwagesover$7.5million.4 Lowerrateof2.50 per centappliesforwagesfrom$0.6Mto$1Mandtherategraduallyincreasesto4.95 per centforwagesbetween$1Mand$1.5M.
Source:Statelegislationandinformationavailableat31October2017
Table6.4:Effectivestateandterritorypayrolltaxratesatvariouswagelevels
Wages$M
NSW%
Vic%
Qld%
WA%
SA1
%Tas%
ACT%
NT%
Average%
1 1.36 1.82 0.00 0.93 1.98 0.00 0.00 0.00 0.76
2 3.41 3.33 2.67 3.57 3.47 2.29 0.00 1.72 2.56
3 4.09 3.84 3.76 4.45 3.96 3.56 2.28 3.44 3.67
4 4.43 4.09 4.30 4.88 4.21 4.19 3.43 4.30 4.23
5 4.63 4.24 4.63 5.15 4.36 4.58 4.11 4.81 4.56
10 5.04 4.55 4.75 5.50 4.65 5.34 5.48 5.50 5.10
20 5.25 4.70 4.75 5.50 4.80 5.72 6.17 5.50 5.30
1Notincludingthesmallbusinesspayrolltaxrebateprovidedtoeligibleemployerswithpayrollsupto$1.2million.Source:Statelegislationandinformationavailableat31October2017
November 2017 | 21
6.4 EmploymentincentivesSomestatesprovide,orhavepreviouslyprovided,short-termemploymentincentiveschemesthrough,orlinkedto,theirpayrolltaxschemes.AcurrentexampleistheNSWJobsActionPlan,whichprovidesapayrolltaxrebateforbusinesseswith50orlessfull-timeequivalent(FTE)employeesforeachpersonemployedinanewjobforaminimumoftwoyears.Othersimilarprogramshavevariouslytargetedincreasingemploymentbasedon:
• employersize,thatis,generallysmallerormediumbusinesses
• employerlocation,suchasregionalorremoteemployers,oremployersinareaswithhighlocalunemployment
• targetedemployees,suchaslong-termunemployed,retrenchedpersons,apprentices,youngpersons,residents(ratherthanFIFOemployees)andAboriginalemployees.
Asidefromtherangeoftheseschemes,thetaxsystemisgenerallynotconsideredthemosteffectivemechanismtoachieveemploymentobjectivesasitcannotaccuratelytargetgovernmentassistancetoparticulargroupsoractivitieswithoutaddingsignificantredtaperequirements.
Also,onlyasmallproportionofemployerspaypayrolltax,especiallyintheTerritorywherethemajorityoflocally-establishedbusinessesarenotsubjecttopayrolltax.Therefore,taxincentivesprovidenobenefittothesesmalleremployers.
Taxconcessionsmaydistorttheintendedoutcomeifanemployerhiresbasedonlocalityratherthanbusinessefficiencyordismissesalong-servingemployeetoreceiveorretainaconcessionprovidedforaneweremployee.
6.5 PotentialreformoptionsGiventhedesirabilityofmaintainingharmonisedpayrolltaxlegislationacrossthestates,thekeyreformoptionsavailableareeitheralterationstothepayrolltaxrateof5.5percentorthe$1.5milliontax-freethreshold.
TheGovernmentisinterestedindiscussingwhatisrequiredtoensuretheTerritorypayrolltaxschemeiseffectiveandsupportiveofTerritorybusinesses,balancedwithitbeingaveryimportantrevenuesource.Thisincludessubmissionsinrespectoftheappropriatenessofthecurrentpolicysettingofahightax-freethresholdtoreducetheimpactofpayrolltaxonlocalbusinesses,balancedwitharelativelyhigherpayrolltaxrate.
Adjusting the payroll tax rateIntermsoffiscalimpact,each0.1percentchangeinthepayrolltaxratewouldleadtoa$5to6 million per annum changeintotalrevenue.
Adjusting the tax-free threshold Areformoptionmayincludeloweringthetax-freethresholdsoanumberofsmallerbusinessescommencepayingpayrolltax.Itisestimatedthatloweringthetax-freethresholdto$1millionwouldraiseabout$11million,whileloweringthethresholdto$600000(equaltoSouthAustralia’sthreshold,thelowestinAustralia)wouldraiseadditionalrevenueofabout$24 million.Thesewouldleadtoabout150to450additionalemployers,respectively,payingpayrolltaxcomparedtothecurrent2500registeredemployers.
22 | Northern Territory Revenue Discussion Paper
Incomparison,increasingthetax-freethresholdwouldreducethenumberofemployersthatpaypayrolltaxatthecostofareductioninpayrolltaxrevenue.However,theindividualsavingsforeachbusinesswouldbemoderate.Thecostofincreasingthethresholdto$1.75millionwouldbeabout$4millionperannumandthecostofraisingthethresholdto$2millionwouldbeabout$7millionperannum.Thesethresholdincreaseswouldonlyremove50to100employersfromthetax base.
Introduce new employee incentivesPayrolltaxconcessionsorrebatescouldbeprovidedforemployersthatemployworkersinnewjobsforaminimumperiodoftime(forexample,atleasttwoyears)ortargetedatparticularcategoriesofemployeroremployee.Forexample,payrolltaxincentivescouldbedesignedtoencourageemploymentoflocalworkersratherthaninterstateorFIFOarrangementsinordertobenefittheTerritoryandregionaleconomies,althoughitmayincuradditionaltaxforbusinesses.
However,ingeneral,theremaybelimitationstotheeffectivenessandefficiencyofpayrolltaxemployeeincentiveschemes.Anysuchincentiveneedstocarefullyconsiderwhetherthetaxsystemisthemostappropriatemethodfordeliveringassistance.
Reduce exemptionsPayrolltaxexemptionsforcertainorganisationsortypesofemployeesresultinrevenueforgoneofabout $30 million.
Removingexemptionsmightincreasethesimplicity,efficiencyandequityofthepayrolltaxsystem,aswellasprovidingasignificantadditionalsourceofrevenuefortheTerritory.However,asthebulkoftheseexemptionsareprovidedtocharitableorganisations,removingtheexemptionsmaybeinconsistentwithgovernmentandcommunityobjectives.
Ontheotherhand,thereisacasetobemadethattheprovisionofassistanceisalwaysmoreefficientlyprovidedthroughagrantandpaymentframework,ratherthantaxconcessions.First,thisrecognisesthattaxconcessionsprovidenoassistancetosmallerorganisationsbelowthetax-freethresholdorthosemainlyrelyingonvolunteers.Italsoallowsagovernmenttobettertargetparticulartypesofcharitiesorensuretheefficientallocationofresources.
Discussion questionsQ6.1 Arethecurrentbroadpolicysettingsforpayrolltax,focussedonahightax-free
thresholdtominimisetheliabilityofsmallerlocalbusinesses,appropriate?
Q6.2 Shouldadjustmentsbemadetothepayrolltaxrateorthreshold?Whatrevenueneutraloptionscouldbepursued,suchasloweringthethresholdinordertolowerthepayrolltaxrate?
Q6.3 DoesthecurrentpayrolltaxsystemencouragebusinessestoemploylocalworkersratherthanFIFOworkers?Shouldit?Ifso,how?
Q6.4 Whatotherimprovementstothepayrolltaxsystemcouldbeconsidered?
Q6.5 IfadjustmentstothepayrolltaxsystemwouldreducetherevenuereceivedbyGovernment,whatmeasuresshouldbetakentocompensate?
November 2017 | 23
7 Property taxes
7.1 ConveyancedutyoverviewIn2016-17,theTerritorycollected$105millioninconveyanceduty,orabout14percentofown-sourcetaxandroyaltyrevenue.
ConveyancedutyisderivedfromdirectandindirecttransfersofdutiablepropertyintheTerritory.Dutiablepropertyisrealestate(land,buildingsandotherfixtures),miningtenementsincludingexplorationrights,andbusinessassetsincludingplantandequipment,intellectualproperty,statutorylicencesandgoodwill.
DutyintheTerritoryiscalculatedbyaprogressiverateonthewholevalueoftheproperty.Forpropertywithadutiablevalueof:
• lessthan$525000,therateisdeterminedbyaformulathatrangesfromaminimumof1.5to4.95percent
• between$525000andlessthan$3million,therateis4.95percent
• between$3millionand$5million,therateis5.75percent
• $5millionormore,therateis5.95percent.
Arangeofexemptionsfromconveyancedutyalsoapplyandconcessionsareavailableforfirsthomebuyers,seniorsandNorthernTerritoryPensionerandCarerConcessioncardholdersandfornewlybuiltprincipalplacesofresidence.
7.2 ConveyancedutycollectionsConveyancedutycollectionsareaffectedbybothpropertyvaluesandtransactionvolumes,whichcanvaryfromyeartoyearandresultinvolatility.Forexample,significantdutycanresultfromasmallnumberofverylargecommercialtransactionsinasingleyear.
• ConveyancestampdutytaxisanimportantTerritoryown-sourcerevenue.
• Stampdutyisdifficulttoforecastaccuratelyasitisaffectedbypropertypricesandsalevolumes,aswellaslargecommercialtransactionsinanotherwisesmallmarket.
• Annualpropertytaxesaregenerallyregardedasastableandeffectivetaxbase.However,annuallandtaxesinotherstatesarenotasefficientastheycouldbe.
24 | Northern Territory Revenue Discussion Paper
Chart7.1:Territorydutycollectionsandtransactionvolumesatselectedvalueranges(2016-17)
Note:Excludesduty-exempttransactions.Source:DepartmentofTreasuryandFinance
AsdetailedinChart7.1,althoughtherearemanytransactionsforpropertiesvaluedbelow$400000,relativelylittlestampdutyiscollectedduetothecombinationoflowerpropertyvaluesandlowerdutyrates.Atvaluesof$400000to$600000,substantialdutyiscollectedbothduetohighervaluesandvolumes,asthisvaluerangecorrespondstotheDarwinmedianhouseprice.Incontrast,therearefarfewertransactionswithavalueof$1millionormorebutsignificantdutyiscollectedduetohighervaluesanddutyrates.
7.3 ConveyancedutydesignissuesAsatransaction-basedtax,conveyancedutyhasbeencriticisedbecauseitaddstothecostoftransfersandcanpotentiallydelayorpreventtransactionsfromoccurring.
Asatransactionaltax,stampdutyimposesahigherlevelofoveralltaxationonindividualswhotransferpropertymorefrequently.StampdutyispartlymitigatedintheTerritorybyanumberofhomebuyerconcessionsandexemptionsforcorporatereconstructionstoassistwithbusinessrestructures.Dutyreliefisalsoprovidedtofirsthomebuyerstoensurestampdutydoesnotdetertheirentryintothehousingmarket.Furtherdetailsontheseconcessionsareprovidedlaterinthischapter.
Stampduty,inthatitincreasespurchasecosts,isonlyonefactoraffectingadecisiontopurchaseproperty.Otherfactorsincludeeconomicconditions,suchasemploymentopportunities,rentalorbusinessinvestmentreturns,andpersonalfactors,suchasthelocationoffamilyandtheavailabilityofhealth,educationandrecreationalservices.
Stampdutyalsohassomedesignbenefits.Stampdutyisonlypaidwhenpropertyispurchased,meaningthetimingofthetaxliabilitywillgenerallyalignwithataxpayer’sabilitytopay(thatis,whenthetaxpayerhasenoughfundstobuytheproperty),orbecapitalisedintoamortgage.Incomparison,recurrentpropertytaxesmaybelesssensitivetothetaxpayer’scapacitytopay.
Stampdutymayalsoimprovemarketstabilitybyaddingtransactioncostsandincreasingthecapitalgainsrequiredbeforeprofitscanbemadeonpropertyinvestment,whichmaydampenspeculativeinvestmentactivity.Aspropertyvaluesandinvestmentdecisionsareaffectedbyawiderangeofvariables,itisdifficulttoevaluatestampduty’seffectonmarketdemand.Somestateshavenonethelessintroducedspecificduties,particularlysurchargesonforeignbuyers,toattempttoaffectdemand-sidemarketconditions.
0246810121416$M
0100200300400500600700Number
< 10
0
100-
200
200-
300
300-
400
400-
500
500-
600
600-
700
700-
800
800-
900
900-
1 00
0
1 00
0-3
000
3 00
0-5
000
5 00
0-10
000
10 0
00-2
0 00
0
20 0
00-3
0 00
0
30 0
00-5
0 00
0
> 50
000
Stam
p du
ty c
olle
cted
Tran
sacti
on v
olum
e
Property value ($000)Transaction volume (count) Stamp duty revenue ($)
November 2017 | 25
Table7.1Foreignbuyersurcharges
NSW VIC QLDSA
(1January2018)WA
(1January2019)
8% 7% 3% 4% 4%
Source:Statelegislationandinformationavailableat31October2017
TheTerritorydoesnotimposeadutysurchargeonforeignbuyersofresidentiallandandforeigninvestmentinresidentialpropertyintheTerritoryisextremelylimited.AlthoughadutysurchargecouldbeimposedonforeignbuyersintheTerritory,itisunlikelytohaveanymaterialeffectonTerritoryrevenuesorrealestatemarketactivity.
7.4 StampdutyeffortintheTerritory–interstatecomparisonTheTerritoryhasrelativelyhighstampdutyrateswhencomparedtomoststates,otherthanVictoria.However,thereisnoannualpropertyorlandtaxintheTerritory.
Somestateshavedifferentdutyratesforcommercialtransactions.InSouthAustraliaandtheAustralianCapitalTerritory,thisreflectsabroaderreformagendatoexemptcommercialtransactionsfromstampduty.
TheTerritorychargescomparativelyhighstampdutyratesoverall,butthesizeofthedifferenceintaxratesvarieswithpropertyvalues.TheTerritory’staxonmedian-valueresidentialpropertiesiscomparativelymuchhigherthantheratesimposedinterstate.Thetaxonhigh-valuetransactionsisalsomorethanthestateaverage,particularlysincetaxrateswereincreasedfrom5.45toamaximumof5.95percenton1July2017.
TheTerritory’shighstampdutyrateissimilarlyreflectedinCommonwealthGrantCommission’s(CGC)assessmentsoftaxeffort.
Table7.2CGCassessedeffort–transferstampduty
NSW Vic Qld WA SA Tas ACT NT Average
2015-16 100.0 104.9 86.7 113.1 105.8 88.7 88.9 105.0 100.0
Source:CGC2017Update
7.5 Stamp duty home buyer concessionsTheeffectoftheTerritory'srelativelyhighstampdutyonTerritoryhomebuyersispartlyoffsetbyanumberofhomeincentiveschemes.
ThelargestprogramistheFirstHomeOwnerDiscount,whichprovidesstampdutyassistanceforfirsthomebuyerswhopurchaseanestablishedhomeintheTerritoryuptothevalueof$650000.Itisafullstampdutyconcessionontheinitial$500000valueofthehome,whichequatestoastampdutysavingofupto$23928.60.
TheTerritoryalsoprovidesaSenior,PensionerandCarerConcession,whichisastampdutydiscountofupto$10000toseniors(aged60yearsorover)orholdersofaNorthernTerritoryPensionerandCarerConcessionCard,forthepurchaseofahomevaluedupto$750000,orvacantlandvaluedupto$385000.
Finally,theTerritoryprovidesaPrincipalPlaceofResidenceRebate,whichisa$7000stampdutyconcessionfornon-firsthomebuyerswhopurchaseorbuildanewhome.
26 | Northern Territory Revenue Discussion Paper
Althoughnotataxconcession,theTerritoryalsoprovidesaFirstHomeOwnerGrantof$26000forfirsthomebuyersthatpurchaseorconstructanewhome.
Togetherthesestampdutyconcessions(andgrant)provideassistanceandresultinrevenueforgone,ofover$24millionperannum,whichissetoutinTable7.3.
Table7.3Homebuyerstampdutyconcessionsandotherincentives
Concession typeAnnualrevenueforgone
$M
FirstHomeOwnerDiscount 13.2
Senior,PensionerandCarerConcession 0.6
PrincipalPlaceofResidenceRebate 0.3
FirstHomeOwnerGrant 10.0
Total cost 24.1
Source:DepartmentofTreasuryandFinance
7.6 PotentialstampdutyreformoptionsIncrease stamp duty ratesAnincreaseinstampdutyrateswouldgenerategreaterGovernmentrevenuesandfundgovernmentservicedelivery.
AnyconsiderationofraisingstampdutyratesshouldtakeintoaccounttheTerritory’srelativelyhighstampdutyrateswhencomparedtothenationalaverage.
Nonetheless,theTerritory’soveralltaxationbaseislimitedandintheabsenceofanalternativeformoftaxation,increasingstampdutyrates(orreducingconcessions)isoneofthefewoptionsavailabletoGovernmenttoraiseadditionalrevenue.
Reform/reduce stamp duty ratesStampdutyisaprogressivetax,withratesincreasingasthevalueofthepropertybeingtransferredincreases.Otherthanatverylowvalueranges,theTerritory’sstampdutyrateishighwhencompared to stamp duty rates interstate.
Onereformoptionistoreducetaxrates.ThiscouldgenerallyimprovetheefficiencyoftheTerritory’staxationsystembutwouldresultinsubstantialreductionsinrevenue.
Chart7.2andTable7.4illustratetheeffectonTerritoryrevenuefromaligningtheTerritory’sdutyrateswiththelowerdutyratesintheAustralianCapitalTerritory,orbyadoptingtheaverageofduty rates imposed interstate.
November 2017 | 27
Chart7.2ComparisonofNorthernTerritory,AustralianCapitalTerritoryandstateaverageresidentialstampdutyrates
Source:Statelegislationandinformationavailableat31October2017
Table7.4Revenueeffectofloweringdutyrates(excludingeffectsofhomebuyerconcessions)
NT duty rates Stateaveragedutyrates ACTdutyrates
Averageoveralldutyrate(%) 4.83 4.24 3.60
Revenue($M) 113 99 84
Cost($M) – -14 -29
Source:DepartmentofTreasuryandFinance
ReducingtheTerritory’sstampdutyratetobeclosertothestateaveragewouldcosttheTerritoryover$14millionperannumandwouldrequireadditionalrevenuefromothersourcesifgovernmentservices are not to be reduced.
Abolition of duty on non-land business propertyFollowingtheintroductionoftheGSTin2000,thegovernmentatthetimecommitted,aspartoftaxreformagreedwiththeCommonwealth,toabolishstampdutyonnon-landbusinessassetssuchasgoodwillandlicences.However,asbusinesspropertycomprisesarelativelysignificantcomponentofTerritorydutiableproperty,thiscommitmenthasbeendelayeduntilBudgetcircumstancesimprovesufficientlytofundthatcommitment.Allstates,otherthantheTerritory,QueenslandandWesternAustralia,havenowabolishedthesetaxes.
Abolitionofthiscomponentofstampdutyisestimatedtocostabout$10millionperannum.TheGovernmentisinterestedinhearingviews,andreceivingevidenceastotheextenttowhichdutyonnon-landpropertyisconsideredanobstacletobusinessdecisionsaboutexpansionorinvestment.
Reform of landholder legislative schemeOneofthemorecomplexaspectsofstampdutyistheimpositionofdutyonchangesincontrolovercompaniesandtruststhatownland.Thisensuresequitybetweenindividualswhoownlandinacompanyortruststructureandindividualswhoholdlanddirectly,andalsoensuresstampdutycannotbeavoidedbyholdingpropertyincompaniesortrusts.
However,ascompanyandtruststructurescanbeextremelycomplex,particularlywhereforeigncorporationsareinvolved,thestampdutylandholderlegislationisverytechnical,makingitchallengingforbothtaxpayersandgovernmenttoapply.
100 200 300 400 500 750 1000 3000 5000$000
ACTNT State average
0
1
2
3
4
5
6
7%
28 | Northern Territory Revenue Discussion Paper
Althoughsomeofthiscomplexityisunavoidable,thecurrentlegislationcouldpossiblybereformedto make it easier to understand and apply.
Governmentisinterestedinwhetherindustryconsidersthistobeapriorityareaforreform.
Reform of corporate reconstruction exemptionsDutyexemptionsexisttoallowforcorporatereconstructionstoallowfortransfersofpropertywithincorporategroupsandfacilitatebusinessrestructures.However,toensuretheseprovisionsarenotexploitedfortaxavoidance,thecurrentprovisionsarerelativelytechnicalandhavearangeofspecificcriteriathatmustapplybeforetheconcessionisapplied.
Theseprovisionscouldbeexpandedtoallowforabroaderrangeoftransactionstobeexempted.Forexample,theprovisionscurrentlydonotapplytoassetsheldinunittruststructures.However,ascorporatereconstructionsarerelativelyrare,viewsaresoughtastowhethersuchreformswouldbeusefulinpracticeorareapriority.
7.7 AnnualpropertytaxesAnalternativetostampdutyisanannualtaxonlandownership.Arecurrentlandtaxisgenerallychargedontheunimprovedvalueoftheland(thatis,thelandvalueexcludingbuildingsandimprovements),andisnotdependentontransactionsinvolvingtheland.Recurrenttaxesonlandareregardedasefficientbecauselandisvaluableandimmobile,meaningthetaxcannotbeavoidedbychangesinthebehaviourofthelandowner.Previoustaxationreformreviewsinterstatehavenotedoveralleconomicefficiencycouldbeimprovedifstatesandterritoriesweretofocusonbroad-basedrecurrenttaxesonland.
Recurrentpropertytaxesincreasethecostsofowningland.Thiscanencouragelandlordstodevelopandutiliselandtowardsitsbesteconomicuse,anddiscouragepracticessuchaslandbanking.Taxesonunimprovedlandvaluesarealsodesirablefromarevenuestabilityperspective,asunimprovedlandvaluesarenotreliantonthestateoftherealestatemarket,thatis,priceandsalesvolumes.
OtherthantheTerritory,allstatesandtheAustralianCapitalTerritoryhavesomeformofrecurrentpropertytaxinadditiontolocalgovernmentrates,generallycalledalandtax.TheTerritorydoesnotimposeanykindoflandtax.
Althoughpropertytaxesaresaidtobeefficient,thelandtaxescurrentlyinplaceinotherstatessufferdesigninefficiencies,suchas:
• taxfreethresholdsthatexcludelowervaluelandholdingsfromthetaxbase
• significantexemptionsforparticularlanduses,specificallyprincipalplaceofresidence(forexample,thefamilyhome)andfarmingland,whichremovealargeportionoftheresidentiallandbaseandhighvaluelandholdingsfromthelandtaxbase
• progressiveratestructures,wheremorevaluablelandistaxedatahigherrate,whichmeanspropertyholdingsneedtobeaggregatedtoassessowners’liabilitytotax.Suchaggregationisadministrativelycomplexandcostlyandcancauseanincentiveforownerstoholdtheirlandindifferentformsofownershipvehiclesinanattempttoreducetheirlandtaxliability.
Incontrast,localgovernmentsacrossAustraliaimposebroad-basedlandtaxesintheformoflocalgovernmentrates.Thesetaxesmostlydonothavetheaboveinefficienciesandareconsideredtobeamongthemostefficienttaxesagovernmentcanimpose.
November 2017 | 29
Othertypesofrecurrentpropertytaxationinterstateincludetheimpositionofvariousmiscellaneouslevies,feesandcharges.Thisincludesregionallevies,suchasemergencyservicesleviesormetropolitanparkinglevies,leviesonforeignownersofland,andleviesonvacantresidentialland.Therateoflandtaxvariessignificantlyineachjurisdiction,asillustratedinTable7.5.
Table7.5Summaryoflandtaxratesandthresholds
NSW VIC QLD WA SA TAS ACT
Fixedcomponent($) 100 275 500 300 – 50 –
Minimumthreshold($000) 549 250 600 300 353 25 –
Maximumthreshold($000) 3357 3 000 5000 11 000 1 176 350 275
Minimumrate(%) 1.60 0.20 1.00 0.25 0.50 0.55 0.41
Maximumrate(%) 2.00 2.25 1.75 2.67 3.70 1.50 1.23
Source:Statelegislationandinformationavailableat31October2017
Theamountofrevenuethatcanberaisedineachjurisdictionthroughalandtaxvariesaccordingtothetaxrateandthresholds,butisalsodependentontheamount,valueanduseoflandinthatjurisdiction.
Assessmentsofeachjurisdiction’slandtaxcapacityaremadeannuallybytheCGC.HavingregardtotheTerritory’spopulation,theTerritoryisassessedashavingbelowaveragelandtaxcapacity,butcouldraise$72millionannuallyifstateaveragepolicywasimposed.
7.8 Potentialreform–introduceanannualpropertytaxAnannualbroad-basedpropertytaxwithnotax-freethresholdsandalowtaxratewouldbeverysimilarto,andhavethesameincidenceas,localgovernmentrates.Duetotheirsimilarities,itispossiblethatexistinglocalgovernmentsystemscouldbeleveragedtoallowanannualpropertytaxtobeimplementedintheTerritorytominimiseadministrativecosts.
Intermsofpossiblerevenueraisedundersuchamodel,theunimprovedcapitalvalueofrateablelandintheDarwin,Palmerston,Litchfield,AliceSpringsandKatherinelocalgovernmentareasisabout$21billion.Atataxrateof0.5percent,whichisroughlyequivalenttothelevelofratesimposedbylocalgovernments,thiswouldraise$105million,broadlyequivalenttoTerritorystampdutyrevenuein2016-17.
Introductionofanannualpropertytaxwouldprovideadditionalrevenuethatcouldfundgovernmentservices.Itmayalsoprovideanopportunitytofundothertaxreform,suchasreducingconveyanceorinsurancestampduty.Othertaxreviews,suchastheAustralia’sFutureTaxSystemReview,haverecommendedthatamovetoreducestampdutiesfundedbyannualpropertytaxeswouldresultinimprovementsinstateandterritorytaxationsystems.
Table7.6setsoutindicativerevenue,theapproximateannualtaxpayablebyatypicalDarwinhomeandexamplesofothertaxreformthatcouldbefunded.
30 | Northern Territory Revenue Discussion Paper
Table7.6Indicativerevenueandeffectofabroad-basedannualpropertytax
Property tax rate
Annualpropertytax revenue
Examplesofrevenue-neutralreformoptionsavailable(thatis,nooverallincreaseintaxrevenue)
Approximateannual tax1
0.1% $21M ReducetheTerritoryto‘stateaverage’conveyancedutyratesORReduceinsurancedutyratesbyhalf
$300
0.2% $42M ReduceTerritoryconveyancedutyratestoaflat3 per cent rateORAbolishinsuranceduty
$600
0.3% $63M ReduceTerritoryconveyancedutyratestoaflat3 per cent rateANDAbolishinsuranceduty
$900
0.4% $84M ReduceTerritoryconveyancedutyratestoaflat1 per cent rate
$1 200
0.5% $105M AbolishTerritoryconveyancestampduty $1500
1Propertywithaunimprovedcapitalvalue(UCV)of$300000andmarketvalueof$520000(thestampdutyforwhichwouldbe$25569)
Source:DepartmentofTreasuryandFinance,localgovernmentbudgetsandannualreports
Introducinganyannualchargeonpropertymaybedifficultforloworfixed-incomehomeownerstobudgetfor.Considerationmayneedtobegiventoassistanceforthesehouseholds,whichinturnwouldhaveaneffectonthelevelofrevenueraisedandmayincreasethecomplexityofthescheme.
Discussion questionsQ7.1 Arethecurrentbroadpolicysettingsforconveyancestampduties,focussedon
relativelyhighrateswithconcessionstoassisthomebuyers,appropriate?
Q7.2 Shouldadjustmentsbemadetotheconveyancestampdutyratesorthreshold?
Q7.3 Whatotherimprovementstothepropertytaxsystemcouldbeconsidered?
November 2017 | 31
8 Gamblingtaxes
8.1 GamblingtaxoverviewGamblingtaxesarethefourthlargestcontributortotheTerritory’sown-sourcerevenue.In2017-18,gamblingtaxrevenueisforecasttobe$78million,upfrom$72millionin2016-17.Thismainlycomprisescommunitygamingmachinetaxof$32million,communitybenefitlevyof$12million,lotterytaxof$23million,bookmakertaxof$5millionandcasinotaxesof$4million.
Generally,gamblingactivitiesaretaxedathighrates.Thisisbecausegamblingactivitiesareoftenrestrictedbyregulation,withfewersuppliersthaninnormalcompetitivemarkets.Asaresult,industryparticipantsfacerestrictedcompetitionfromwhichtheycanextracthigherprofits.Thesehigherprofitsarealsoknownasmonopolyprofitsoreconomicrent.
Taxesoneconomicrentaregenerallyregardedasbeingaveryefficientformoftaxation.However,determininganappropriateleveloftaxationischallengingduetotheneedtobalancetherevenuethatcanberaisedfromgamblingtaxeswiththeregulatoryrolegovernmentplaysinlimitingsocialharmfromproblemgambling.
Furthermore,giventhesocialcostsassociatedwithgambling,thereisastrongcommunityexpectationforgovernmentstocollectareasonableshareofprofits,intheformoftaxes,fromgamblingactivities.
Intermsoftaxpolicyprinciples,gamblingtaxesaresomewhatregressive.Thisisbecauselowincomeearnerstendtospendproportionatelymoreoftheirincomeongamblingactivitiesincludinglotteriesandgamingmachines.
Gamblingtaxesarereasonablystraightforwardtoadminister,withlimitedcompliancecostsforbusinessafterotherregulatorycompliancerequirementsarefactoredin.Despitethissimplicityandtherelativestabilityofgamblingtaxcollection,therearetax-baserisksinrelationtobookmakertax,whicharedetailedlaterinthischapter.
TheNorthernTerritory2015GamblingPrevalenceandWellbeingSurveybytheNorthernTerritoryGovernmentandMenziesSchoolofHealthResearchfoundthatTerritoryadultpopulationgamblingparticipationdeclinedsignificantlybetween2005and2015,otherthanonlinegamblingonracingandsports.Thismayindicatelimitedscopeforgrowthingamblingtaxrevenues.
• TheTerritoryimposesseveralkindsofgamblingtaxes,includinglotteries,electronicgamingmachinetaxes,bookmakertaxandcasinotaxes.
• Communitygamingmachinetaxespaidbyclubsandhotelswererecentlyincreasedinthe2017-18Budget.
• Bookmakertaxesmayshifttobeingbasedonthelocationofthepersonplacingthebet,dependingonthereformsinterstate.
• Duetoexistingcontractualagreementswithoperators,thereislimitedscopetoreformothergamblingtaxes,suchascasinotaxes,inthenearterm.
32 | Northern Territory Revenue Discussion Paper
8.2 GamblingintheTerritoryGamblingintheTerritoryinvolvesElectronicGamingMachines(EGMs,colloquiallyknownaspokermachinesor‘pokies’),tablegamingincasinos,NTKenoandlotteries.Gamblingalsoincludesbetsplacedoneventssuchashorseracingorsportsbetting.
Pokies,tablegames,lotteries,andNTKenotypicallyphysicallytakeplaceintheTerritory,whilebettingonevents,andinparticularsportsbetting,canoccuronlinewiththebetsbeingplacedremotelybybothlocalandinterstatecustomers.TotheextenttheonlinebookmakersandbettingexchangecompaniesarelocatedintheTerritory,taxesarecurrentlypaidtotheTerritoryregardlessofwherethecustomersare.
8.3 TaxesoncommunitygamingmachinesCommunitygamingmachinetaxisamonthlytaxbasedonthegrossprofits,thatis,playerlosses,fromgamingmachinesinhotelsandclubs.ATerritorywide-caplimitsthetotalnumberofcommunitygamingmachinesto1852.Limitsinthenumberofgamingmachinesalsoapplyforeachvenue,being55forclubsand20forhotels.
From1July2017,communitygamingmachinetaxisimposedonclubsandhotelsatmarginalratesrangingfrom12.91percentto42.91percent,withrecentreformloweringthethresholdsatwhichthosemarginalratesareimposed.From1July2018,hotelswillbesubjecttofurtherchangestorates and thresholds.
8.4 CommunitybenefitsHotelsandthecasinosarealsosubjecttoa10percentcommunitybenefitlevyinadditiontogamingmachinetaxes,withrevenuefromthatlevycontributing$11milliontotheCommunityBenefitFundin2016-17.TheCommunityBenefitFundprovidesgrantstooffsetgaming-relatedharmandimprovecommunitywelfare.
Clubsarenotsubjecttothecommunitybenefitlevyinrecognitionthatclubsarenot-for-profitandalreadyprovidearangeofbenefitstothecommunity.
Clubshavesignificantdiscretioninthemannerandamountofcommunitybenefitstheyprovide.Thelevelofcontributionstothecommunityvarysignificantlyfromclubtoclubandyeartoyear.
Table8.1illustratesthereportedgrossgamingmachineprofitandcommunitycontributionclubsprovide(eitherbywayoffinancialassistanceorin-kindcontributions).
Table8.1:Communitysupportcontributionsfromlicensedclubsin2016-17
Clubsize(bygrossprofitfromgamingmachines)Grossprofitfromgamingmachines Gamingtaxpaid
Community contribution
Clubs1-10 $44.3M $15.3M $3.8M
Clubs11-20 $9.7M $2.4M $1.1M
Clubs21-28 $0.8M $0.1M $0.4M
Total $54.7M $17.8M $5.3M
Source:NorthernTerritoryDepartmentofBusinessCommunityBenefitFundAnnualReport2016-17
November 2017 | 33
8.5 Casino taxesTherearetwocasinosintheTerritory,SKYCITYinDarwinandLassetersinAliceSprings.Casinosarelicensedtooperatepokies,whichareadditionaltotheTerritory-widecaponmachinenumbersapplicabletoclubsandhotels.Territorycasinosarealsorequiredtoprovideadditionalactivitiesincludingtablegames,aswellasrestaurantsandotherfacilities.Thisindirectlylimitsthenumberofpokiesbyrequiringfloorspacetobeputtootheruses.SKYCITYalsooperatesNTKeno,whichisbroadcasttoothervenuesunderlicensingarrangements.
Aspartofacasinolicence,operatorsenterintoataxagreementwiththeGovernment.Casinotaxratesaresetoutintheagreements,withtaxessubjecttoreviewbyGovernmentonthetermssetoutintheagreements.SKYCITY’snexttaxreviewisin2025(andthenevery10years),whereasLasseters’reviewisin2022(andthenevery10years).
Thesetaxreviewsmusttakeintoaccounttheprofitabilityofthecasinos,gamblingharm,conductofthecasinosandthecasinos’investmentinthelocaleconomy,suchasthroughexpansion,refurbishment,communitysponsorshipandsupport,andtheprovisionofnon-gamblingentertainment,retailanddiningfacilities.Thereislimitedscopetoamendcasinotaxarrangementsoutsidetheagreementreviewclauses.
Presently,differenttaxratesapplytothegrossprofitsofeachtypeofgamblingactivityundertakenatSKYCITYandLasseterscasinos.ThesearesummarisedinTable8.2below.
Table8.2:Comparisonofcasinotaxes
Casino Poker machines Tablegamesandcommissionplay Keno
SKYCITY 15%plus10%community benefitlevy
RateequivalenttotheGSTrate 10%
Lasseters 11%1plus10%communitybenefitlevy
RateequivalenttotheGSTrate TaxpaidbySKYCITY
1Increasingto13 per centin2018,15 per centin2019and20 per cent in 2022.Source:CasinoOperatorsAgreements
8.6 LotterytaxCurrently,theTattsGrouppayslotterytaxbasedonnetprofitsoflotteriesphysicallysoldintheTerritoryandonlinethroughtheinternetlotterylicencegrantedbytheTerritorytoTatts Group.
Lotterytaxisbasedonanexclusive20-yearlicenceandagreementbetweentheTerritoryandTatts,negotiatedin2012.Toreflectthemonopolyrightsassociatedwiththeseagreements,andthegenerallackofseparatecommunityinvestmentincomparisonwithcasinosorothercommunitygamingvenues,lotterytaxratesaremuchhigherthanotherformsofgamingtax.Aslotterytaxesaresetbyagreement,reformoptionsarelimited.
8.7 WageringtaxWageringtaxispaidbyUBETinrelationtototalisator(‘tote’)wageringthoughTerritoryoutlets,clubsandpubs,andatracecourses.In2015,UBETwasgrantedalong-termexclusivelicencetooperatetotewageringintheTerritoryforaperiodof20years.
34 | Northern Territory Revenue Discussion Paper
AlthoughthetermsofthatagreementreducedtheamountofwageringtaxpayabletotheTerritorybyUBET,itresultedinUBETprovidingsustainable,long-termfundingtotheracingindustrythroughthepeakbodiesThoroughbredRacingNTandtheDarwinGreyhoundAssociation.Thesebodiesreceivesignificantfixedannualfunding,monthlypaymentsbasedonfixedpricebettingrevenue,aquarterlyindustryfundingpackage,andracingandregionalmarketingsupportfees.Thesepaymentssignificantlyreducetheamountofindustryassistancegovernmentwouldotherwiseprovidetotheracingsector.
Duetothe20-yearexclusivityagreementcurrentlyinplacewithUBET(until2035),taxreformoptionsarelimited.
8.8 BookmakertaxandbettingexchangetaxAlthoughonlinebookmakershavearelativelysmallphysicalpresenceintheTerritory,theynonethelesscontributetotheTerritoryeconomy.Onlinebookmakersandbettingexchangesemployabout380Territoriansandprovideabout$42millioninbroadereconomicbenefitsincludingtaxes,sponsorships,productfees,rentandAboriginalemploymentprograms.
Bookmakersandbettingexchangespaytaxatarateof10percentongrossprofits,cappedatamaximumof500000revenueunits(currently$575000).Bookmakerspaidabout$5.4millioninbookmakertaxin2016-17.
TheTerritory’sbookmakertaxcapwassetindirectresponsetotaxcompetitionfromotherstates.Asaresult,bookmakersremainedintheTerritorybutatthecostofasignificantreductioninTerritorytaxrevenue.Aslongascurrentinterstatetaxcompetitionremains,thereislimitedabilityfortheTerritorytoadjustbookmakertaxrates.
However,oneareathatcouldbeexaminedisaligningthetreatmentofbetsmadeinrelationtosportingevents.Currently,bookmakertaxesareleviedongrossprofitsinrelationtobetsmadeonhorse,trottingandgreyhoundraces.Betsonothereventsarespecificallyexcludedincalculatinggrossmonthlyprofitfortaxpurposes.Asaresult,bookmakersprimarilyfocusedonbettinginrelationtosportingeventspaylowerbookmakertax.
Thereasonforthisinconsistencyislargelyhistoric,asgamblingonothersportingeventswasmuchlowerinthe1990sandTerritorygamblingtaxonothersportingeventswasrelativelylowpriortobeingremovedtomakewayfortheintroductionoftheGST.Expandingthetaxtoincludesportingevents could raise up to $1.1 million per annum.
Morerecently,otherstateshaveexpressedinterestinapoint-of-consumptiontaxonbookmakersbasedonthelocationofthepersonplacingthebet,ratherthanthelocationofthebookmaker.SouthAustraliacommencedapoint-of-consumptiontaxon1July2017,andimposesa15percenttaxonthenetwageringrevenueofallbettingcompaniesfrombetsplacedbycustomerslocatedinSouthAustralia.Thisnewtaxisexpectedtoraiseabout$10 millionperannumfortheSouthAustralianGovernment.
WesternAustraliaissettointroduceasimilartaxfrom1January2019anditsracingindustrywillbecompensatedforanydirectfinancialimpactsrelativetothecurrenttaxscheme.Themeasureisexpectedtoraiseover$20millionperannumfortheWesternAustralianGovernment.
November 2017 | 35
Incomparison,theTerritorywouldraiseonlyabout$1to$2millionifitfollowedtheSouthAustralianapproach,whereasmorethan$5millioninbookmakertaxwascollectedin2016-17.Althoughapoint-of-consumptiontaxhasadvantagesforotherstategovernments’taxrevenues,itpresentsachallengefortheTerritory,asmostbetsareplacedbyconsumersresidinginotherjurisdictions.
Otherissuesincludedesigningtaxestoavoiddoubletaxation,ensuringanewtaxcanbeeffectivelyimplementedbybookmakers,andrecognisingthepaymentofGSTandproductfeespaidtosportingbodies.
TheTerritoryopposestheintroductionofpoint-of-consumptiontaxes.However,giventhemovesbyotherstates,theTerritoryhasadvocated,throughtheCouncilofFederalFinancialRelations,thatanyintroductionofapoint-of-consumptiontaxshouldbethroughaunifiednationaltaxscheme,eitherthroughconsistentstatetaxescollectedbyasinglejurisdictionorbymeansofaCommonwealthtax.Suchamodelwouldreducetheadministrativeandcomplianceburdenthatwouldariseunderdivergentstatetaxmodels.
Discussion questionsQ8.1 Arethecurrentbroadpolicysettingsforgamblingtaxesappropriate?
Q8.2 Aregamblingtaxcollectionsatanappropriatelevel?Ifnot,howshouldgamblingprofitsbebetterdistributedbetweengamblingoperatorsandtheTerritory?
Q8.3 IfanygamblingtaxadjustmentswouldreducetherevenuereceivedbyGovernment,whatmeasuresshouldbetaken,orothersourcesofrevenueconsidered,tocompensate?
36 | Northern Territory Revenue Discussion Paper
9 Motorvehicletaxes
9.1 MotorvehicletaxoverviewTherearetwomainTerritorytaxesimposedonmotorvehicles.Stampdutyisimposedonthetransferofownershipofamotorvehicle(motorvehicleduty)andfeesarealsopayableontheregistrationorrenewalofregistrationofamotorvehicle.
In2016-17,theTerritoryreceivedabout$70millioninmotorvehicletaxesoralmost10per cent ofown-sourcetaxandroyaltyrevenue.Thistotalcomprised$48millioninmotorvehiclefees($28millionfromlightvehicleregistrationsand$20millionfromheavyvehicleregistrations)and$22 million in motor vehicle duty.
Motorvehicletaxesarearelativelyefficientandstableformofrevenue.Motorvehicleregistrationfees,imposedperiodicallyandatlowerrates,aremoreefficientthanmotorvehicleduty,whichisimposedonatransactionalbasis.
Itisrecognisedthatmotorvehiclecostsareasignificantcomponentofhouseholdexpenditure.AustralianGovernmenttaxes,compulsorymotoraccidentinsuranceandothercostssuchascouncilparkingfees,eachincreasethecostofowningamotorvehicle.
9.2 MotorvehicledutyMotorvehicleownersarerequiredtopaystampdutyontheissueortransferofamotorvehiclecertificateofregistration.Stampdutyisleviedonthevalueorpurchasepriceofthevehicleatarateof$3per$100orpartthereof.ThisincludesvehicleaccessoriesandadditionalequipmentatthetimetheapplicationforregistrationortransferismadeaswellasanyGSTpayable.
DutyispayableattheMotorVehicleRegistryatthetimetheapplicationforregistrationortransferismade,withapplicationtobemadewithin14daysofapersonbecomingtheownerofthevehicle.
Duetomotorvehicleduty’srelativelylowrate,itsinfluenceontaxpayerbehaviourislikelytobelimited.Forexample,anadditional$150indutywouldbepayablebyaTerritoriandecidingbetweena$25000and$30000car.Comparedwiththecostofthecar,thestampdutyisunlikelytobeamajorfactorindecidingbetweenthetwochoices.
Totheextentthatithasaneffectonbehaviour,stampdutyismorelikelytodeterapersonfromregisteringchangeofownershipofamotorvehicle(asthisiswhenthedutyispaid)ratherthanthesaleorunderlyingchangeinownershipofavehicle.
• TheTerritoryimposesmotorvehicledutywhenownershipofavehiclechanges,andalsochargessix-monthlyorannualregistrationfees.
• TheTerritory’sstampdutyrateandregistrationfeesareamongthelowestinAustralia.ThiscontributestothetotalcostofregistrationofTerritoryvehiclesbeingbelowthenationalaverage.
• AustralianGovernmenttaxes,compulsorymotoraccidentinsuranceandothercostsincreasethecostofowningamotorvehiclefarmorethanTerritorytaxes.
November 2017 | 37
9.3 MotorvehicleregistrationfeesTerritorymotoristsarealsorequiredtopayasix-monthlyorannualfeetoregistertheirvehiclesforuseon-road.Vehicleregistrationhelpstoensuretheroadworthinessofmotorvehiclesandpromotestheirsimpleandreliableidentificationandproofofownership.
RegistrationfeesintheTerritoryarecollectedontheregistrationofbothlightandheavyvehicles.HeavyvehicleregistrationfeesaredeterminednationallybytheStandingCouncilonTransportandInfrastructure,andareadjustedinJulyeachyear.
LightvehicleregistrationfeesaredeterminedbytheTerritoryandvaryaccordingtoadifferentialscalebasedonenginecapacityandnumberofcylinders.Feesareexpressedinrevenueunits,whichmeansmotorvehicleregistrationfeesincreaseinlinewithinflation.
Althoughnottaxationrevenue,compulsorymotoraccidentcoveraddstothetotalcostofowningavehicle.MotoraccidentinsurancepremiumsintheTerritoryaresetbytheMotorAccidentsCompensationCommissionandfundno-faultinsurancetoroaduserswhoareinjuredordieasaresultofanaccident.Premiumsarebasedonensuringlikelycompensationclaimscanbemetandaresubjecttoactuarialreviewannually.IntheTerritory,premiumsareaffectedbyhighercostsassociatedwiththeTerritory’ssmallpopulationbaseandhighincidenceofroadaccidentcasualties.Nonetheless,Territorymotoraccidentpremiumsarearoundtheaverageoftheotherstates.
9.4 Interstate comparisonTheTerritory’sstampdutyrateandmotorvehicleregistrationfeesareamongthelowestinAustralia.Intermsofstampduty,incomparisonwiththeTerritory’sflat3percentrate,otherjurisdictionsapplyvariousprogressiveratescalesandoftenapplydifferentratesforpassengerandcommercialvehicles.Forexample,forpassengervehiclesaboveacertainvaluethreshold(rangingfromover$40000inTasmaniato$65000inVictoria),higherratesofbetween4percentand6.5percentmayapplyinterstate.
AnumberofmotorvehicledutyexemptionsapplyintheTerritoryandinterstate,includingwhenregistrationistransferredbetweenjurisdictions,agriculturalorprimaryproductionvehicles,vehiclesownedbycharities,andtradingstockofmotorvehicledealers.Someenthusiastvehicles,caravansandtrailersmayalsobeexempt.IntheAustralianCapitalTerritory,agreenvehicleratingschemeapplies,whichprovidesforconcessionalratesofdutybasedonlowervehiclecarbondioxide emissions per kilometre.
Formotorvehicleregistrationfees,somestatescalculatefeesbasedongrossvehiclemassandtareweightandsomebasedonenginecapacityandnumberofcylinders.Somestatesalsoimposeemergencyservicelevies,trafficimprovementlevies,roadrescuefeesandroadsafetycontributionfees.AscanbeseeninTable9.1,whichcomparesarangeofpopularlightvehicles,theTerritory’smotorvehicleregistrationfeesareamongthelowestinAustraliaandcontributetotheTerritory’stotalcostofregistrationgenerallybeingbelowthenationalaverage.
38 | Northern Territory Revenue Discussion Paper
Table9.1:Motorvehicleregistrationcostscomparison
Vehicle NSW VIC QLD WA SA TAS ACT NT Avg
2017ToyotaCorolla/Hyundaii30
Registrationfee($) 358 290 310 301 123 200 366 179 266
Compulsoryinsurance,othercharges($)
638 510 435 421 648 377 700 559 536
Total registration cost ($) 996 801 746 721 771 577 1 066 738 802
Ranking1
Registrationfee 7 4 6 5 1 3 8 2
Total costs 7 6 4 2 5 1 8 3
2017ToyotaHiluxSR5
Registrationfee($) 513 290 310 474 454 200 532 179 369
Compulsoryinsurance,othercharges($)
1309 512 471 392 734 377 700 559 632
Total registration cost ($) 1 822 802 782 866 1 188 577 1 233 738 1 001
Ranking1
Registrationfee 7 3 4 6 5 2 8 1
Total cost 8 4 3 5 6 1 7 2
2017HoldenCommodore–Evoke
Registrationfee($) 513 290 492 366 252 233 532 227 363
Compulsoryinsurance,othercharges($)
638 510 435 421 648 377 700 559 536
Total registration cost ($) 1 151 801 927 786 900 610 1 233 786 899
Ranking1
Registrationfee 7 4 6 5 3 2 8 1
Total cost 7 4 6 3 5 1 8 2
2017 Nissan Patrol
Registrationfee($) 715 290 689 626 357 292 811 538 540
Compulsoryinsurance,othercharges($)
638 510 435 421 648 377 834 559 533
Total registration cost ($) 1 353 801 1 124 1 047 1 005 669 1 646 1 097 1 093
Ranking1
Registrationfee 7 1 6 5 3 2 8 4
Total cost 7 2 6 4 3 1 8 5
1 Rankingof1representsthelowestfees/costofallstates.Source:Statelegislationandinformationavailableat31October2017
Table9.2comparestherevenue-raisingeffortasassessedbytheCommonwealthGrantsCommission(CGC)foreachjurisdictionasat2015-16,themostrecentavailableyear.TheCGC’scomparisonshowstheTerritoryhadthelowesteffortofallstatesandterritorieswithrespecttomotortaxes.
November 2017 | 39
Table9.2:Motortaxesrevenueraisingeffort2015-16(percent)
NSW Vic Qld WA SA Tas ACT NT NT rank
Motortaxes 121 81 104 100 81 73 111 66 Lowest
Note:Lowestmeansleasttaxrevenueraised.Source:CGC2017Update
Duetothetimingofavailabledata,Table9.2doesnotreflecttheincreaseinregistrationfeesinrecentstateandterritorybudgets.ThisincludesanincreaseinTerritoryfeesfrom1July2017,providinganadditionalrevenueof$5.2millionperyear,whichshouldmovetheTerritory’smotortaxesrevenueeffortcloserto,butstillbelow,thenationalaverageeffort.
9.5 PotentialreformoptionsTheTerritorycouldconsiderfurtherincreasingitsrevenueefforttomorecloselyreflectthenationalaverage.
OnepotentialreformoptionmaybetomovetheTerritory’sregistrationfeecomponentofoverallregistrationfurthertowardsthenationalaverage.Thiscouldbeachievedimmediatelyorwithsmallerincreasesoffeesovertimeinordertoreducetheimpactonthecostofliving.
Anotheroptionforreformmaybetolowerorremovemotorvehiclestampdutyandreplacetherevenueforgonewithhigherregistrationfees.Changingthemixbetweenmotorvehicleregistrationfeesandstampdutywouldhavesomebenefitsanddisadvantages.Areductioninmotorvehicledutymayencourageorfacilitatemotoriststoupgradetheirvehicles,leadingtonewer,moreenvironmentallyfriendlyandsafervehiclesonTerritoryroads.
However,higherannualregistrationfeeswouldhaveagreaterimpactonlowerincomeTerritorianswhohavelessabilitytopay.
Table9.3:Lightmotorvehicleregistrationfeeoptions
Current + 5%increase1 +10%increase1
Revenue $33M $1.6M $3.3M
2017ToyotaCorolla/Hyundaii30 $179 $9 $18
2017ToyotaHiluxSR5 $179 $9 $18
2017HoldenCommodore $227 $11 $23
2017 Nissan Patrol $538 $27 $54
1 Percentagesreflectincreasestotheregistrationfeeanddonotreflectapercentageincreasetototalregistrationcosts,whichwouldbelower.
Source:DepartmentofTreasuryandFinance
Discussion questionsQ9.1 Arethecurrentbroadpolicysettingsformotorvehicletaxes,includingthemix
betweenmotorvehicledutyandfees,appropriate?Shouldanadjustmenttothismixbemade?
Q9.2 Whatotherimprovementstomotorvehicletaxescouldbeconsidered(forexample,specificexemptionsorsimplification)?
40 | Northern Territory Revenue Discussion Paper
10 Insurance duty
10.1 OverviewofstampdutyoninsuranceLikemostotherstates,theTerritoryimposesstampdutyoninsurance.IntheTerritory,insurancedutyisonlyimposedongeneralinsurance.Insurancedutyiscalculatedatarateof10percentofthepremiumchargedtotheinsuredperson,includingGST.
Insurancedutydoesnotapplytoapolicyofreinsurance,privatehealthinsurance,workerscompensationinsuranceundertheReturn to Work Act,freightandcommercialmarineinsuranceorlifeinsurancepolicies.
Insurancedutyispaidbyinsurers,howeverthecostispassedtocustomersintheformofhigherinsurance prices.
In2016-17,theTerritorycollectedabout$43millionininsuranceduty,orabout6percentofown-sourcetaxandroyaltyrevenue.
10.2 InsurancedutydesignissuesInsuranceproductsarepurchasedbymanyTerritorianstohelpmanagetheirrisk,withthepaymentofapremiummadeforcoveragainstlossifcertaineventsoccur.Insurancecanprovideasafetynetandcanbedescribedasasocialgood.
Privateinsuranceisconsidereddesirablefromapublicpolicyperspective(particularlyintheeventofalargescaledisaster).Totheextentthatinsurancedutyincreasesthecostofinsurance,itmaydeterpeoplefromtakinguptheappropriatelevelofinsurance.Non-insuranceislikelytobemoreprevalentamongforpersonsonlowerincomes,whomayalsobemorevulnerableintheeventofloss.
Overall,complyingwithinsurancedutyisreasonablystraightforwardforinsurersandadministrativecostsarelow.Insomecases,wherethepolicyrelatestoriskorpropertybothinsideandoutsidetheTerritory,thepremiumneedstobeapportionedandthisimposesanadditionalcomplianceburden.Suggestionsforsimplificationwouldbewelcome.
Inanyevent,broaderreformofinsurancedutyneedstotakeintoaccountitscontributiontoown-sourcerevenue.ItisworthnotingthatallstatesotherthantheAustralianCapitalTerritorycontinuetoimposeinsurancedutyatratessimilartotheTerritory.
• Insurancedutyincreasesthecostofinsurancebutitisreasonablyadministrativelysimpleandanimportantsourceofrevenue,raisingabout$40millioneachyear.
• Asignificantreductionininsurancedutyratesorabolitionwouldrequireothertaxreform.
November 2017 | 41
10.3 PotentialreformReducingtherateofinsurancedutymaybedesirablefromaneconomicefficiencyperspective,asitcouldlowerinsurancepremiumsandencourageindividualsandbusinessestotakeupanappropriateamountofinsurance.
However,a25percentreductionofinsurancedutyrates(to7.5percent)wouldcostaround$11millionannually,andafullabolitionwouldcostover$43million.
Introducingspecificexemptionsforcertainclassesofinsurancemaybeanalternativereform.Creatingnewspecificexemptionscostslessthanfullabolitionofinsurancedutybutcouldachievesomeofthesamepolicygoalsbyreducingthecostofaclassofinsuranceproducts.However,specificexemptionswouldincreasecomplexityandonlybenefitpolicyholderswiththespecificexemption.Exemptionscanalsopotentiallydistortinsurancepolicymarketsbymakingthenon-exemptpoliciescomparativelymoreexpensive.
Discussion questionsQ10.1 Arethecurrentbroadpolicysettingsforinsurancedutyappropriate?
Q10.2 Whatotherimprovementstoinsurancedutycouldbeconsidered(forexample,specificexemptionsorsimplification)?
Q10.3 Ifanyinsurancedutyreformswouldreducetherevenuereceivedbygovernment,whatmeasurescouldbetakentocompensate?
42 | Northern Territory Revenue Discussion Paper
11 Bankingtaxes
11.1 TheCommonwealth’smajorbanklevyInits2017-18Budget,theCommonwealthintroducedamajorbanklevyonbankswithover$100billionintotalliabilities.Asaresult,themajorbanklevyappliestoAustralia’sfivelargestbanks:theCommonwealthBank,ANZ,Westpac,NABandMacquarieBank.
Thelevyappliesfrom1July2017andisbasedontheliabilitiesofeachbank,lesssomeexclusionsconsideredlowriskanddepositsupto$250000.Thelevyissetattherateof0.015percentpayablequarterly,whichequatestoanannualrateof0.06percent.Themajorbanklevyisforecasttoraiseabout$1.5to$1.6billionperannumfortheCommonwealthGovernment.
TheCommonwealth’sstatedpolicyrationaleforintroducingthemajorbanklevyis:
• ensuringthebankingsectormakesafaircontributiontotheeconomygivenitsuniqueroleinAustralia’seconomyandassociatedsystemicrisksitimposes
• improvingcompetitionandaccountability
• complementingprudentialreforms.
Themajorbanklevyfollowsa2010recommendationbytheInternationalMonetaryFundtointroduceataxonthefinancialsector,withseveralcountrieshavingintroducedsimilarleviessince2010.SuchataxmaybejustifiedonthebasistheCommonwealthGovernmentwouldsupportAustralia’slargestbanksintheeventofasignificantfinancialcrisis.Asaresult,thecreditratingsofAustralia’slargestbanksbenefitfromtheperceptionorexpectationofCommonwealthsupport.ThevalueofthisimplicitsubsidywasestimatedbytheReserveBankofAustraliaatabout$1.9billionin2013.
Intermsoftheimpactofthemajorbanklevy,althoughpayablebyAustralia’sfivelargestbanks,thecostmaybepassedontobankcustomersintheformofhigherinterestrateschargedtoborrowersandlowerinterestratesondeposits.
Ifcompetitivepressurefromsmallerbanksandotherfinancialinstitutionslimitstheimpactonbankcustomersthentheprofitabilityofthemajorbankscoulddecrease,withconsequencesforbankshareholders.
• AnewbanktaxwouldhavethepotentialtoprovidetheTerritorywithsignificantrevenueofabout$24million,basedontheCommonwealth’smajorbanklevyandSouthAustralia’ssimilar proposal.
• ThetaxwouldbepaidbyCommonwealthBank,ANZ,Westpac,NABandMacquarieBank.However,thecostofthetaxmaybepassedontobankcustomersintheformofhigherinterestrateschargedtoborrowersorlowerinterestratesondeposits.
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11.2 Introduceastatebanklevy?InSouthAustralia’s2017-18Budget,asimilarbanklevyatthesamerateof0.015percentwasproposedbuttheenablinglegislationisyettobepassedbytheSouthAustralianParliament.TheSouthAustralianbanklevyisforecasttoraise$417millionoverthenextfouryears.
Importantly,theSouthAustralianbanklevywouldbeimposedonSouthAustralia’sshareofthetotalvalueofbankliabilitiessubjecttothemajorbanklevy.SouthAustralia’sshareofbankliabilitiesistobebasedonSouthAustralia’sgrossstateproductshareofnationalgrossdomesticproduct. This is currently about 6 per cent.
AlthoughabanklevywasnotincludedinWesternAustralia’s2017-18Budget,theWesternAustralianGovernmenthassaiditwillconsiderintroducingabanklevysimilartothatproposedinSouthAustralia.
Bywayofcomparison,basedontheTerritory’sgrossstateproductshareof1.4percent,theTerritorycouldraiseabout$24millionfromanewbanklevywithasimilardesigntothatproposedinSouthAustralia.
Thereisariskifastate-imposedbanklevywaspassedontoborrowersintheformofhigherinterestrates,thenthiscouldreducehomeownership,especiallyforborrowersonlowerincomes.AfurtherriskisaconstitutionalchallengeagainstanystatebanklevyintheHighCourt.ConcernshavealsobeenexpressedinSouthAustraliaabouttheeffectofthebanklevyoncustomersandinvestment in the state.
Discussion questionQ11.1 ShouldtheTerritoryconsiderintroducingabanklevy?
44 | Northern Territory Revenue Discussion Paper
12 Mineralroyalties
12.1 MineralroyaltyoverviewMineralroyaltiescanbeaverysignificantbuthighlyvariablecomponentoftheTerritory’sown-sourcerevenue,raising$165millionin2016-17.
Unliketaxes,royaltiesarecollectedbytheTerritoryfrombusinessesaspaymentfortherighttoextractcommoditiesownedbythecommunity.
IntheTerritory,mostminespayprofit-basedmineralroyalties.However,severalminesaresubjecttolegacyagreementsthatimposeroyaltiesbasedonthevalueofmineralsextracted.Overall,themajorityofroyaltiesarepaidbyonlyaminorityofTerritoryminersduetotheframeworkoftheTerritory’sprofit-basedroyaltyscheme.SomepastminespaidlittlemineralroyaltiestotheTerritory,havingopenedforshortperiodsbutthenclosedbeforeincurringroyaltyliabilitiesorareunder‘careandmaintenance’.ThisisarguablyadrawbackoftheTerritory’sprofit-basedroyaltyscheme.
RoyaltycollectionsarealsoimportantforAboriginalpeopleinrelationtominingonAboriginalland.TheCommonwealthmakespaymentstotheAboriginalBenefitsAccountequaltotheamountsofanyroyaltiesreceivedbytheTerritoryinrespectofamininginterestinAboriginalland.ThesepaymentsarethendirectedtothebenefitoftraditionalownersandotherAboriginalTerritorians,includingthroughthelandcouncils.
TheFraserInstitute’sAnnualSurveyofMiningCompaniescontinuestoranktheTerritoryveryhighintheworldformineralpotentialandinvestorattractiveness,inpartduetotheTerritory’sprofit-basedroyaltyscheme.Thesurveyalsorecognisesafavourableroyaltyschemeisoneofmanyfactorsaffectingexplorationandmininginvestmentdecisions.
12.2 The Mineral Royalty Actprofit-basedschemeMuchoftheTerritory’sroyaltiesarecollectedundertheMineral Royalty Act,whichisaprofit-basedroyaltyschemeintroducedin1982.Royaltyiscalculatedbasedonminingrevenuelessproductionandotherdirectlyrelatedexpenses.Profit-basedroyaltiesaremorecomplexthanvalue-basedorquantity-basedroyaltyschemes.
ThemainfeaturesoftheMineral Royalty Actare:
• Auniformschemeregardlessofthetypeofmineralsproduced.
• 20percentroyaltyrateonthenetvalueofmineralproduction,subjecttoa$50000netvalueroyalty threshold.
• Mineralroyaltiesaremostlycollectedunderaprofit-basedscheme,apartfromseveralminesoperatingunderlegacyvalue-basedarrangements.
• Mineralroyaltiesareanimportantbuthighlyvariablesourceofown-sourcerevenueforthe Territory.
• However,somemineshavepaidlittleornomineralroyaltiestotheTerritoryundertheprofit-basedscheme.
November 2017 | 45
• Thelifecycleofamineisrecognisedbyallowingthedeductionofcertainexploration,pre-production,productionandrehabilitationcostsessentialtoproducethemineralcommodity.
• Changesinprofitabilityoveramine’slifeimpactsonroyaltycollections,thatis,lessroyaltyispayabletotheTerritoryatcommencementofmining,buthigherroyaltyshouldbecollectedasaminematuresandgeneratesmoreprofit.
• Thereisastrongergrowthinroyaltycollectionsintimesofhighermineralpricesthanundervalue-basedschemesbuthastheoppositeresultintimesoflowermineralprices.
• Negativenetvalue(thatis,wheredeductiblecostsaregreaterthanrevenueinayear)canbecarriedforwardandaccumulatedbyaroyaltypayeruntiloffsetagainstprofits.Royaltybecomespayableafterallprioryearcostsarefullyabsorbed.
• Accelerateddeductionofcapitalcoststhatrecognisesthedepreciationofminingassetsandthecostoffinancing.
• Royaltyiscalculatedonaproductionunitbasisanddoesnotaggregaterevenueandexpensesfromotherminescarriedoutbythesameoperator.
12.3 InterstatealternativesWiththeexceptionoftheCommonwealth’sPetroleumResourceRentTax(PRRT)andtheroyaltyarrangementforBarrowIslandinWesternAustralia,theTerritoryisuniqueastheonlyAustralianjurisdictionthathasawhollyprofit-basedroyalty.Theroyaltiesandratesadoptedinterstatevarybetweenthejurisdictionsanddependonthecommodity,whichcanmakedirectcomparisonsdifficult.However,otherjurisdictionslargelyimposeroyaltiesbasedonthevalueorquantityofmineralsextracted.TasmaniaandQueenslandhaveexceptionswithhybridvalue/profitroyaltyschemesforsomemineralcommodities.
Value-basedroyalties(alsoreferredtoasadvaloremroyalty)areleviedonthevalueofthemineralproducedwithoutregardtothecostsincurredbytheminer.Incomparisontoprofit-basedroyalties,value-basedroyaltiesaremorepredictableandlessresponsivetochangesincommodityprices.However,theycannotreadilytakefulladvantageofsuddenincreasesincommoditypricesandminingprofits.
Oneofthemainadvantagesofferedbyvalue-basedroyaltiesistheyaresimplerandmoretransparentforgovernmentandminerstoadminister,whilealsoprovidingamorepredictablesourceofrevenue.
Whileprofit-basedroyaltiescanreflectthestrongergrowthofroyaltyrevenuesduringtimesofhighmineralprices,theoppositeresultmaybeobservedintimesoflowmineralpriceswhenvalue-basedschemescontinuetoprovideamoresteadyroyaltyonthemineralsconsumed.
Accordingly,somejurisdictionsapplyahybridvalue/profitroyaltyscheme.Suchaschemeprovidessomeroyaltyforeachyearofmineproductionwhilealsomaintainingtheabilitytotakeadvantageofasignificantincreaseincommoditypricesandminingprofits.Byensuringallminersproducingproductpayaroyaltyonthatproduction,ahybridroyaltyschemecanmeettheobjectiveofthecommunityreceivingareturnfromtheremovalofitsnon-renewableresources.
46 | Northern Territory Revenue Discussion Paper
12.4 HistoricaltrendsintheTerritory’sroyaltyreceiptsAsanumberoftheTerritory’smineshavebecomewellestablished,theTerritory’sroyaltycollectionshaveincreasedsignificantlyandthebenefitsoftheTerritory’sprofit-basedroyaltyschemehavebecomemoreevident.TheincreaseintheTerritory’smineralroyaltyreceiptsinrecentyearsalsocorrespondswithasimilarincreaseinminingrevenueeffortasassessedbytheCommonwealthGrantsCommission(CGC).
Duringthe1980s,1990sandearly2000s,thevalueofproductionandprofitabilityofmineswasmuchlowerandfewerroyaltieswerecollected.Theincreaseinroyaltycollectionssince2007-08demonstratestheeffectivenessoftheTerritory’sprofit-basedroyaltyschemeinensuringanoverallfairreturntothecommunityonitsnon-renewableresources,especiallyinrelationtoseveralofitswell-establishedmines.
Bycontrast,inordertobenefitfromhighmineralprices,interstategovernmentsincreasedvalue-basedcoalandironoreroyaltyrates.Thisprovidedbetterreturnstothecommunityinresponsetothesuperprofitsgeneratedbysomeminingcompanies.However,thesereactionaryincreasesgenerallyoccurredafterperiodsofhighprofitabilityenjoyedbyminers.
ComparisonsoftotalroyaltyreceiptsaremadebytheCGCforeachstateandterritory.TheCGChasassessedtheTerritory’seffortasaroundorabovethenationalaverageinrecentyears.Revenueeffortistheratioofactualrevenuetotherevenueraisedifajurisdictionappliesthenationalaveragelevelofroyalty.
IncomparisontotheTerritory’saverageorabove-averageeffortinrecentyears,from2002-03to2006-07,theTerritory’sassessedminingrevenue-raisingeffortwasbelowthenationalaverage.ThismeanstheamountofminingrevenuetheCGCassessedtheTerritoryashavingcapacitytoraisewassignificantlygreaterthanwhatwasactuallyreceivedfromTerritorymines.
Chart12.1showstheTerritory’srevenueeffortinrelationtominingroyaltiesfrom2002-03to2015-16asassessedbytheCGC.
Chart12.1:NorthernTerritory’sminingrevenueraisingeffort
Source:CGCupdatesandreviews
Chart12.1alsodemonstratestheincreaseintheTerritory’sminingrevenueeffortduringthe‘commoditiesboom’in2008and2009,whichcorrespondstoasignificantspikeinroyaltyreceipts.
0
50
100
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200
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03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
$M
Year ended June
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12.5 DesignissueswiththeTerritory'sprofit-basedroyaltiesAlthoughroyaltycollectionsandminingrevenueefforthaveincreasedsignificantlyinrecentyears,followingyearsofrelativelylowroyaltycollections,itisimportanttonotetheCGC’sassessmentprovidesaggregateinformationabouttheeffectsoftheTerritory’sroyaltyschemeoverall.ThehighprofitabilitysomeminesarenowexperiencingisbalancedbyotherminespayinglittletonoroyaltiestotheTerritory.
Asaminematures,andinitialcapitalcostsarerecoupedandproductionvolumesincrease,anincreaseinprofitabilityshouldresult.However,therisksinherentinminingmayexplainwhyanumberofTerritorymineshavepaidlittletonoroyaltiesundertheMineral Royalty Act. The complexityofthelegislationunderpinningtheTerritory’sprofit-basedroyaltyschemeandthescopeofdeductionsandabilitytocarryforwardlargelosses,mayalsobeacontributingfactor.
InrecentyearsanumberofsmallermineshaveoperatedintheTerritoryforrelativelyshortperiodsandthenclosedorplacedintocareandmaintenance,duetoarangeoffactors.Suchfactorsincludehigherthanexpectedcosts,short-liveddecreasesincommoditypricesorlowerthanexpectedmineralgradesandrecoveries.Theseshort-livedminesdidnotpayroyalties.
Arguably,therecentexperiencewiththesesmallermineswasnotcontemplatedinthedesignofthe Mineral Royalty Act,whichanticipatesminingoperationsmovingfromtheinitialstart-upphasetoincreasedproductionandprofitabilitywhenhigherroyaltiesbecomepayable.Thispotentiallyindicates the Mineral Royalty Act appliesmoreeffectivelytolong-lifemineswheretheinitialcostsare recouped over a decade or more.
12.6 PotentialreformoptionsTheGovernmentisinterestedtohearofpotentialreformsthatwouldensureTerritoryroyaltiesaremoreeffectiveandsupportiveofbusinessesbutensureanappropriatereturntothecommunityfortheextractionofnon-renewableresources.
Adjust the headline mineral royalty rate Themineralroyaltyratewasincreasedfrom18percentto20percentin2010;theonlychangetotheratesincetheintroductionofthelegislation.PriortotheintroductionoftheMineral Royalty Actin1982,aroyaltyratehigherthan20percentwasinitiallyproposed,andthecurrentratecomparesfavourablytotheCommonwealth’sresourcerenttaxrates.
Althoughdifficulttoaccuratelyforecast,every1percentagepointchangeinthemineralroyaltyrateequatestoachangeinroyaltycollectionstotheTerritoryofabout$8to$10million.Thisnumberissensitivetocommodityprices,currencyexchangeratesandproductionlevels.
Aprofit-basedroyaltyratethatistoohigh,however,mayactasadisincentivetoundertakeminingactivitiesintheTerritoryandlowertheTerritory’scompetitivenessincomparisonwithotherjurisdictions.
Introduce a value-based minimum royaltyTheintroductionintothecurrentprofit-basedschemeofaminimumlevelofroyaltypaymentusingavalue-basedmethodwouldensureaminimumreturntotheTerritoryfrommining,regardlessoftheprofitabilityofthemine.Guaranteeingaminimumreturnoffersabuffertofluctuatingroyaltycollectionsoverthelifecycleofamineunderaprofit-onlyscheme.Aminimumvalue-basedroyaltywouldnotimpactthoseTerritoryminescurrentlypayingprofit-basedroyaltyabovetheleveloftheset minimum amount.
48 | Northern Territory Revenue Discussion Paper
However,thistypeofschemewouldrequirethoseminesnotpayingroyaltyunderthecurrentrulestopayaroyalty.Itwouldalsoaddressthecontentionthatcurrentmineralroyaltyrulesallowthecollectionofroyaltytobedeferredtoolongandwouldprovideareturntothecommunityfromshort-termminingoperationsthatotherwisewouldnotpayprofit-basedroyalties.
Toreduceanydisincentivetofutureinvestment,arelativelylowminimumvalue-basedroyaltyratecouldbeset.Forexample,a2to4percentroyaltybasedonthegrossvalueofmineralproductionwouldraiseabout$11to$22millionperannum.Again,thisestimateissensitivetocommodityprices,currencyexchangeratesandproductionlevels.Aminimumroyaltyrateof4percentorlessmayalsobecompetitivewiththevalue-basedroyaltiesinotherjurisdictions.
Aminimumvalue-basedroyaltyguaranteesaminimumreturntotheTerritoryonanylevelofproduction.
Replace current profit-based scheme with a value-based schemeIntroductionofavalue-basedschemewouldprovidetheTerritorywithamoresteady,butlikelyloweroveralllevelofroyaltyrevenue.
However,theTerritory’sprofit-basedroyaltyschemeisattractivetothedevelopmentofnewminingsitesintheTerritoryandcontributestothehighinternationalratingassignedtotheTerritoryintheFraserInstitute’sAnnualSurveyofMiningCompanies,whencomparedtopurelyadvaloremroyalties.
Anyfundamentalchangeofthisnaturewouldneedtoconsidergrandfatheringthearrangementsinplaceforexistingmines,astheprofit-basedschemeiscentredonawholeofminelifeconcept,withlittletonopaymentsearlyinminelifeandhigherpaymentsastheminematures.
Base reforms and efficienciesAroyaltyschemeshouldpromotecertaintybyhavingcontemporaryrulesclearlyspecifyhowroyaltyistobedetermined.Asaresult,royaltypayersshouldunderstandtherulesandbeabletocomplywiththemcorrectly,whichleadstoincreasedstakeholderconfidenceintheintegrityandtransparencyoftheroyaltyscheme.
ChangestotheMineral Royalty Act may be appropriate to modernise the provisions and reduce red tape.ItisimportanttogenerateanappropriatereturntoTerritoriansonfinitemineralresourcesandsupportinvestmentinexplorationanddevelopmentofthoseresources.
OutlinedbelowareanumberofoptionsforreformtotheoperationandefficiencyoftheMineral Royalty Act.Suggestionsandcommentsareinvitedinthisregard.
Operating costs Tocalculatetheroyaltypayable,amineoperatorisentitledtodeductarangeofoperatingcostsincurredintheproduction,maintenanceforproduction,saleormarketingofamineralcommodity.Inordertobeaneligibleoperatingcost,anexpensemustbereasonableinamountanddirectlyattributabletotheproductionofasaleablemineralcommodity.
Thelegislationcurrentlysetsoutthedefinitionofoperatingcostsinbroadterms,listingspecificexpensesthatmaybeconsideredoperatingcostsandspecificexpensesnotconsideredoperatingcosts.Competinginterpretationsareencounteredonconceptssuchas'directlyattributable'or'reasonableinamount'.
Alternatively,deductionrulescouldbeamendedtoprovidegreaterclarityorincentivesforcertainkindsofbehaviour.Forexample,currentoperatingcostrulesexcludecostsforofficeslocatedoutsidetheTerritory.SimilarrulescouldbeusedtoencourageminerstoemploylocalworkersratherthanFIFOarrangements.
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Governmentisinterestedonviewsastowhetheritisdesirabletoclarifythescopeofthedefinitionofoperatingcosts,ensuringcostsareproperlycategorised,andifso,how?
Determining mineral value Bysettingthevaluationpointattheboundaryofamine,royaltyispayabletotheTerritoryformineralsintheirnaturalstate,ratherthantheenhancedvalueofarefinedmineral.Wherethereisnocontractedsalepriceatthetimethemineralsleavetheminesite,thevaluemustbeestablishedthroughothervaluationmethods.
Inmanycases,themineralswillbesoldshortlyafterbeingremovedfromtheminesite,inwhichcasethesalevaluecanbeusedinmuchthesamewayasifthemineralsweresolddirectlyfromtheminesite.However,morecomplexandlessreliablevaluationmethodsmustbeutilisedwherethisdoesnotoccur,orifthesalepricedoesnotreflectanarm’slengthoropenmarketprice.
Themostappropriatevaluationmethodcanvarybetweenminerandmineral,andmayalsodependonthegradeandqualityofthecommodity.TheTerritoryhaspublishedaguidelinelistingacceptablevaluationmethods.However,insomecases,valuationmayneedtoberesolvedonacase-by-casebasishavingregardtothecircumstancesofeachmineandcommodity.Thisapproachlackscertaintyforbothadministratorsandroyaltypayers,andhasbeenthecauseofcomplexandcostly disputes.
Accordingly,itmaybeappropriatetoconsideroptionstoimplementbettervaluationpracticesaimedatreducingdisputesandincreasingcertainty.Governmentisinterestedinviewsastowhetheritisdesirabletoclarifyvaluationpracticesandifso,how.
Consider appropriateness of negative net value transferabilityCurrently,whenamineissold,negativenetvalue(thatis,deductiblecostsexceedingrevenue)accruedbytheroyaltypayeristransferabletothenewownerofthemine.Whenthenegativenetvalueexceedsthepurchasepricepaidforthemine,thisresultsinananomalousoutcomewhereanewminerisminingprofitablyafterrecoupingitspurchasepricebutisnotinaroyalty-payingpositionduetothesubstantialnegativenetvalueincurredbythepreviousowner.
Accordingly,theremaybemeritinexaminingthepolicyofallowingthecarryforwardofnegativenetvaluefromyeartoyearandlimitingittotheroyaltypayerwhoactuallyincurredthelosses.Alternatively,itmaybeappropriateforanewownerofaminetoonlybeabletoinheritalimitedamountofnegativenetvalue.
Alignment with Commonwealth taxation conceptsCurrently,therearearangeofconceptsusedtodetermineamine’sroyaltyliability,similarinnaturetothoseusedinCommonwealthtaxationpurposes,butwhichhaveadifferentapplication.Forexample,deductionsfordepreciationandcapitalallowancesoreligibleresearchanddevelopmentexpenditure.
Whereappropriate,aligningmineralroyaltyconceptswithCommonwealthreportingrequirements,orotherwisewithstandardaccountingpractices,maysaveminersthecostassociatedwithmaintainingseparatereportingschedulesfordifferenttaxorroyaltyschemes.Governmentisinterestedwhetherthesereformswouldassistminersinstreamliningtheirreportingobligations.
50 | Northern Territory Revenue Discussion Paper
Administrative amendments to clarify and moderniseItisalsorecognisedthereareadministrativeefficienciestobegainedoropportunityexiststomakeotherchangestotheroyaltyschemethatwouldassistinreducingtheadministrativeburdenonroyalty payers.
Theadministrativeframeworkcouldbemodernisedwithaviewofincreasingclarityandtransparencyarounditsoperation.AdministrativemodernisationhasoccurredforotherTerritorylegislationinrecentyears,includingtheTaxation Administration Act, whichprovidesusefulmodelprovisionsthatmaybesuitabletoadoptforroyaltypurposes.
Discussion questionsQ12.1Arethecurrentbroadpolicysettingsformineralroyaltiesappropriate?
Q12.2 Does the mineral royalty scheme provide an appropriate return to the community,bearinginmindtheneedtobalanceafairreturntothecommunitywithareturntoproducers?Istheremeritinconsideringaminimumroyaltyrequirementinthescheme?
Q12.3Whatotherimprovementstothemineralroyaltysystemcouldbeconsidered?
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13 Petroleumroyalties
13.1 PetroleumroyaltyoverviewThereiscurrentlyamoratoriumonunconventionalpetroleumproduction,suchashydraulicfracturing,intheTerritorywhiletheScientificInquiryintoHydraulicFracturingintheNorthernTerritory is conducted.
ThepetroleumroyaltymattersraisedbelowdonotpresumeanyparticularoutcomeorrecommendationfromtheScientificInquiry,orparticularpolicystanceoftheGovernment.Rather,theroyaltymattersbelowreflectlong-standinglegislativeprovisionsgoverningpetroleumroyaltiesintheTerritoryandassociatedissueswithcurrentconventionalpetroleumproducers.
TheTerritorychargesa10percentvalue-basedroyaltyonallonshorepetroleumresourceswithintheTerritoryanditscoastalwaterboundaries.Petroleumsourcedfromoffshore,suchastheBayu-Undanfieldprocessedattheliquefiednaturalgas(LNG)plantatWickhamPointandtheIchthysfieldprocessedattheINPEXLNGprojectaresubjecttotaxationbytheCommonwealthandnotsubjecttoTerritoryroyalties.
13.2 The Petroleum Act royalty schemeThemainfeaturesoftheTerritory’scurrentpetroleumroyaltyschemeare:
• RoyaltiesunderthePetroleum Actarechargedatarateof10percentonthepetroleum’sgrossvalueatthewellhead(thepointofextraction).
• Petroleumroyaltyiscalculatedonaprojectbasisanddoesnotaggregateincomeandexpensesfromoperationscarriedoutbythesameproducerinrelationtootherfields.
• NegotiationsbetweentheTerritoryandlicenseesarerequiredtoestablishanagreementforeachindividualproject.Administrativearrangementsarealsosetbywayofagreementratherthanlegislation.
• Exploration,drilling,capitalandothercostsincurredupstreamofthewellheadarenotrecognised.Similarly,abandonmentordecommissioningcosts(includingmothballingandrehabilitationexpenditure)arenotspecificallydeductible.
• Petroleumroyaltycalculationsarenotdirectlyaffectedbytheprofitabilityofthefield.Asaresult,royaltyispayableassoonasproductioncommences,regardlessofthequality,sizeandlocationofthefield.
• Thereiscurrentlyamoratoriumonunconventionalpetroleumproduction,suchashydraulicfracturing,intheTerritorywhiletheScientificInquiryintoHydraulicFracturingintheNorthern Territory is conducted.
• Thepetroleumroyaltymattersdiscussedinthischapterdonotpresumeanyparticularoutcomeorrecommendationfromthescientificinquiry,oranypolicystanceoftheGovernment.
• Petroleumroyaltiesarecollectedundera10percentvalue-basedscheme.
• Therecouldbeimprovementstothecurrentscheme,includinghowpetroleumisvaluedforroyalty purposes.
52 | Northern Territory Revenue Discussion Paper
TheTerritoryimposesa10percentroyaltyononshorepetroleumproductionbasedonthepetroleum’sgrossvalueatthewellhead(thepointofextraction).Royaltiesareimposedaspetroleumpassesthewellhead,beingthepointinproductionwhereownershipofthenaturalresourcepassesfromtheTerritorytotheproducer.
Aspetroleumisnotactuallysoldatthewellhead(instead,itissubjecttofurtherprocessingandrefinement),itcanbedifficulttovaluepetroleumatthewellheadforroyaltypurposes.
Themostcommonmethodofobtainingthevalueofthepetroleumatthewellheadistoobservethefirstsalepriceoftherefinedpetroleumanddeductproductioncostsincurredbetweenthewellheadandthefirstpointofsale.Thisisknownasa‘net-back’method.Applyingthenet-backmethodcanbeadministrativelycomplex,andrequiresguidelinesandagreementsbetweentheTerritoryandtheproducer.Theneedtoenterintoindividualagreementscancreateuncertainty,questionsabouttransparencyandhasledtoprotractednegotiations.
Undercurrentarrangements,producersareabletodeductarangeofcostsfromthefinalsalespricetoarriveatthewellheadvalue.Thismayincludefieldgatheringcosts(thecostsofrunningthepetroleumfromthewellintoprocessingfacilities),processing,storageandpipelinetariffsortransportationcosts(thecostsoftransportingthepetroleumtotherefineryorthefirstpointofsale),anddepreciationoffieldproductionassets.
Akeydrawbackofthenet-backapproacharisesifthescopeofdeductiblecostsistoobroadasitcantechnicallyresultinanegativevalueofthepetroleum.Thisisatoddswithavalue-basedscheme and the concept that petroleum has an inherent value.
Theimpactofnet-backdeductionsisdemonstratedbyChart13.1.AlthoughtheTerritoryimposesa10percentroyalty,theactualpetroleumroyaltyreceivedbytheTerritorysince2010islessthan4percentonthevalueofthepetroleumatitsfirstpointofsale,andhasaveragedabout2percent(thatis,thewellheadvalueiscalculatedtobesignificantlylowerthanthefirstsalesvalue).Incomparison,thehistoricalaverageeffectiveroyaltyrateis6.5percentofthefirstsalevalue.
Thisfallintotalrevenueisattributabletolowerpricesandconsequentialreductionsinproductionvolumesbutnoreductioninongoingcostsanddepreciation,whichremainreasonablyfixedregardlessofproductionvolume.Inavalue-basedschemethatdoesnotrelyonanet-backmethodtodeterminevalue,theeffectiveratewouldbeaconsistentpercentageofthevalue,regardlessofproductionvolumes,pricechangesorcosts.
Chart13.1TotalNorthernTerritorypetroleumrevenueandeffectiveroyaltyrate
Source:DepartmentofTreasuryandFinance
0.01.02.03.04.05.06.07.08.09.010.0
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13.3 AdministrationframeworksandcurrentissuesTheDepartmentofPrimaryIndustryandResourcesissuestitlesunderthePetroleum ActfortherighttoproducepetroleumwithintheTerritory.Whenapersonobtainsatitleorlicencetheymustundertaketopayroyalties.TheTerritoryRevenueOfficeisresponsibleforadministeringpetroleumroyalties.
The Petroleum Actcurrentlycontainslimitedadministrativeandcomplianceprovisionstosupportthecollectionofpetroleumroyalties.Forexample,incomparisonwiththeTerritory’sTaxation Administration Act or Mineral Royalty Act,thepetroleumroyaltylegislationdoesnotdetailtherequirementsformakingpaymentandlodgementofreturnsandhasnoadministrativereviewprovisionsifdisputesarise.Thereisalsonoguidancefordeterminingpost–wellheaddeductiblecosts.
ThislackoflegislativedetailcreatesuncertaintyforproducersandtheTerritoryRevenueOfficeastohowandwhenroyaltyliabilitiesaretobemet.Thecurrentproject-by-projectapproachtosettlingpetroleumroyaltyarrangementshassignificantcompliancelimitations,maybelessattractivetoinvestorsduetotheuncertaintyforprospectiveproducersandislesstransparentthanamorecomprehensive,modernscheme.
13.4 PotentialreformoptionsTheGovernmentisinterestedindiscussingpotentialreformsthatwouldensurethepetroleumroyaltyschemeismoreeffectiveandsupportiveofbusinesseswhileensuringanappropriatereturntothecommunityfortheextractionofanon-renewableresource.Potentialreformoptionsare:
Converting the current scheme to a profit-based royalty schemeTherecentCallaghanReportontheCommonwealth’sPetroleumResourceRentTaxReviewnotedaprofit-basedroyaltyremains“thepreferredwaytoachieveafairreturntothecommunityfortheextractionofpetroleumresourceswithoutdiscouraginginvestment”andwith“therangeofuncertaintiesinvolvedinlargelong-termpetroleuminvestments,stabilityinfiscalsettingsisanimportantfactorinfluencinga[jurisdiction’s]investmentattractiveness”.Detailsaboutthecharacteristicsofaprofit-basedroyaltyarediscussedinthepreviouschapter.
Aprofit-basedroyaltymaybelessdistortionaryandabletobetterpromoteexplorationanddevelopment.Giventheadditionalcomplexityofaprofit-basedschemeandassociateduncertainties,Governmentisinterestedingaugingthedesireforsuchamajorreforminthecurrenteconomic environment.
Bolster legislation in respect of petroleum royalty calculation and administrationToreduceuncertaintyandavoidtheneedtonegotiateroyaltyarrangementsforindividualprojects,anotheroptionistointroducelegislationsettingoutthecalculationofroyalty,includingdetermininggrossvalueandallowabledeductions,aswellasdetailedadministrativeprovisions.
Thisoptionwouldhavetheprimarybenefitsofprovidinggreaterlegislativecertaintytoproducersinassessingtheeconomicviabilityoffutureprojects,removetheneedforlengthyroyaltycalculationnegotiationsbetweentheTerritoryandproducers,andsimplifycompliance.
Alternative methods of determining the value of petroleumInordertoreduceoreliminatetherequirementtodeductproductioncoststocalculatethegrossvalueofthepetroleum,oneoptioncouldbetoextendtheroyaltyvaluationpointdownstreamfromthewellheadtotheboundaryoftheproductionlicence,wherethepetroleumisbetterabletobevalued.Anothercouldbetodeterminevaluebyreferencetoanobjectiveorpublishedpricebasedonproductionvolumes.
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Thevalueofthepetroleumcouldthenbedeterminedatthetimeofitsremovalfromtheproductionunitbasedontheactualorcomparablearm’slengthsalepricesachievedortheopenmarketpriceestablishedbyareliablecommoditiesexchange.ThisissimilartothevaluationapproachundertheTerritory’smineralroyaltylegislationandmayovercometheshortcomingsofthenet-backmethod.
Governmentisinterestedinwhetheritisappropriatetoconsideralternativemethodologiesfordeterminingthevalueofthepetroleum.AnysuchalternativewouldneedtoensuretheTerritoryreceivesafairandrelativelystablereturn,whileprovidingindustrywithadequateprofits.Analternativevaluationmethodshouldnotresultinanegativevalueofpetroleum.Principlesoftransparency,certaintyandsimplicityarealsoimportant.
Discussion questionsQ13.1Arethecurrentbroadpolicysettingsforpetroleumroyalties,basedonvalue-
basedroyaltyassessedatthewellhead,appropriate?
Q13.2Isthenet-backapproachfordeterminingpetroleumroyaltyappropriate?
Q13.3Aretherealternativemethodsfordeterminingthevalueofpetroleumthatshouldbeconsidered?Forexample,movingthepointofvaluationdownstreamorascertainingvaluebyreferencetoobjectiveorpublishedpricebasedonproductionvolumes?
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14 Otherown-sourcerevenuebases
14.1 OtherrevenuesourcesoverviewAlthoughtaxesandroyaltiesarethemainown-sourcerevenuebasefortheTerritory,theTerritoryalsoraisesrevenuethroughfeesandcharges,rentandtenancyincome(suchasmineraltenementsorpastoralleaserent),interestanddividendincome,andprofitandlossonthedisposalofgovernmentassets.
In2016-17,theTerritorygeneralgovernmentsectorraisedabout$452millionfromown-sourcerevenueotherthantaxesandmineralandpetroleumroyalties,withabout$333millionofthatfromgoodsandservicesrevenue,$33millionfromregulatoryfeesandcharges,$18millionfromfines,$14millionfromrentalincome,and$4.7millionfrompetroleumandminingrents.
14.2 FeesandchargesTheTerritoryraisesabout$33millionfromregulatoryfeesandcharges.Mostfeesandchargesareexpressedinrevenueunits,whichareindexedtotheDarwinconsumerpriceindex(CPI).Thismeansovertimethefeesraiseasthecostsofdeliveringthoseregulatoryservicesincrease.
However,CPImaynotbethebestbasisforindexingfeesandchargesbecausethecostofdeliveringservicestendstoincreasewithwagecostsandothercoststhatincreasedifferentlytoCPI.
Ideally,regulatoryfeesandchargesshouldreflectthecostofdeliveringtheregulatoryserviceandshouldreflectsimilarfeesinotherstatesandterritories.
14.3 Pastoral lease rentsPastoralleasesareatitletolandissuedfortheleaseofanareaofCrownlandtouseforthepurposesofgrazingstockandassociatedactivities.Pastoralleasesareissuedforthesepastoralpurposes,includingsomesupplementaryorancillaryuses.
Pastoralleaserentsarecurrentlysetonthebasisoftheunimprovedcapitalvalueofthepastoralleaseland,andraiseabout$5millionperannum.Governmenthasconsultedwithindustryaboutmovingtoaprocessofassessingpastoralleasesbasedontheestimatedcarryingcapacityoftheland,whichisthenumberofcattlethatcangrazeonthatlandgivenitsnaturalfeaturessuchasclimate,landtypes,plantspeciesandwatersources.
UnderrecentchangestothePastoral Land Act,lesseescannowapplyfornon-pastoralusediversificationpermits,allowingotheractivitiesonpastoralleasessuchashorticulture,aquaculture,tourismandforestryactivities,allowingpastoraliststodiversifytheirincome.Thesepermitsaresubjecttomodestannualfees.
• Significantrevenueisalsoprovidedfromvariousotherown-sourcerevenuebasesincludingawiderangeoffeesandcharges,pastoralleaserents,andmineralandpetroleumtitlerents.
• Feesandchargescouldbereviewedtoensuretheybetterreflectcostrecoveryprinciples,exceptwheresubsidiesarepreferred.
• ConsiderationcouldalsobegiventowhetherTerritoriansarereceivinganappropriatereturnfromleasinglandforpastoralandminingpurposes.
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14.4 MineralandpetroleumtitlerentsMineralandpetroleumtitlesarelicencesandleasesoflandthatallowfortheexplorationforandextractionofmineralandpetroleumresourcesintheTerritory.In2011,anewMineral Titles Act commencedwiththeaimofintroducingaschemetoencourageactiveexploration,landturnover,andtheactivedevelopmentofmineraldeposits.
Mineraltitlesaresubjecttoannualrentandadministrationfeesthatmustbepaidforthetitletoremainvalid.Thefeesandrentdependonthenatureofthetitle,suchasexplorationlicences,mineralleases,extractivemineralpermitsorlicences.Thesefeesandrentareexpressedinrevenueunits and are detailed at nt.gov.au/industry/mining-and-petroleum/mineral-titles/mineral-title-fees-and-rents.Currently,theTerritoryreceivesabout$4.7millionperannumfrommineralandpetroleumtitlerentsandfees.
Discussion questionsQ14.1Arethecurrentbroadpolicysettingsforfeesandchargescorrect?Shouldfees
andchargesbereviewedtobetterreflectcostrecoveryprinciples?
Q14.2DoestheTerritoryreceiveappropriatereturnsfromleasinglandforpastoralandminingpurposes?
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15 Recentstatetaxationreforms
Governmentsregularlyreviewtheirtaxationlawsandmakeamendmentstoinfluencethedesignoftheirtaxationschemes.Someoftheamendmentscanhavelargefinancialimpactsonthecommunity(suchaschangestothetaxrateorthescopeofatax-freethresholdorexemptions)butonlyarelativelysmallchangetotheoveralldesignofthetaxscheme.
NumerousstatetaxeswereabolishedfollowingtheintroductionoftheGST,pursuanttotheIntergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. This chapter providesasummaryofmorerecentstatetaxreformsinthelastfiveyears.
15.1 Majorreforms15.1.1 Australian Capital Territory major reformsTheAustralianCapitalTerritory(ACT)commencedlarge-scaletaxreformin2012,followingadetailedtaxreviewcompletedinthatyear.Thekeyoutcomesofthereformsinclude:
• abolishingstampdutyoninsuranceoverfive yearsbyreducingtherateseachyear(withgeneralinsurancereducedfromarateof10percentby2percentperyearandlifeinsurancedutyreducedfromarateof5percentby1percentperyear)
• abolishingstampdutyonpropertyover20yearsbyreducingtherateeachyear,withtheamountofthereductiondecidedineachyear’sBudgetprocess
• abolishingcommerciallandtaxandcombiningitwithcommercialgeneralrates
• increasinggeneralratesandlandtaxeachyeartocompensatefortheinsurancedutyandstampdutyforgone.
Followingfouryearsofreducinginsurancedutyrates,on1July2016,theACTcompleteditsabolitionofstampdutyoninsurance.
Stampdutyonpropertyiscontinuingtobephasedout,withstampdutyoncommercialpropertytransfersvaluedatlessthan$1.5millionabolishedfrom1July2018andtheratesapplyingtoresidentialstampdutyreducedannually.Forpropertysalesupto$500000,conveyancedutyreducedbyatleast30percent,althoughthedecreaseforhighervaluedpropertiesislesspronounced.
Forexample,dutyona$500000propertyreducedfrom$20500to$13460(a34percentreduction),whereasdutyona$1.2millionpropertyreducedfrom$62750to$56210(a10percentreduction).
Thesereformswereoffsetbyincreasestogeneralrates,whichareeasierfortheACTGovernmenttoimplementbecauseitimposeslocalgovernmentratesandthereisnoseparatelocalgovernment.
• Governmentsregularlyreviewtheirtaxationlawsandmakeamendmentstothedesignoftheirtaxationschemes.
• Thischapterprovidesasummaryofstatetaxreformsinthelastfiveyears,includingsignificantreformsintheAustraliaCapitalTerritoryandalsoinSouth Australiafollowingtheirstatetaxreviews.
• Numerousminorreformshavealsooccurredinotherstates.
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Upto2016-17,residentialratesintheACThaverisen63percentforhouses(fromanaverageof$1406to$2295)and60percentforunits(fromanaverageof$847to$1352).
TheACTforecastsrateincreasesoverthenextfiveyearsof6percentperyearforcommercialpropertiesand7percentperyearforresidentialproperties.
ThesereformssubstantiallychangethetaxmixintheACTbyshiftingthereliancefromstampdutiestorecurrenttaxesonunimprovedlandvalues.
Bystagingtheabolitionofstampduty(andincreasesingeneralrates)overa20-yearperiod,theACThasattemptedtominimisethetransitionalissuesassociatedwithsuchlargereforms,althoughitmakestheprocessmorecomplicated.Furthermore,theeconomicbenefitsofthereformswillnotbefullyachieveduntilthereformsarecompleted.
Astheamountofthereductioninstampdutyandconsequentincreaseinpropertytaxesisdecidedeachyear(althoughbroaddirectionsforreformareannouncedeachfiveyears),thereisariskreformcanbedelayedorabortedwithachangeofgovernmentorasaresultofcommunityopposition.Recently,therehasbeenincreasingcommunityoppositiontotheincreasesinrecurrentpropertytaxes,eventhoughinsurancedutyhasalreadybeenabolishedandpropertystampdutiescontinuetoreduce.
Theproposed20-yeartransitionalperiodmeanscompletionofthetaxreformprocessisreliantonsuccessivegovernmentscontinuingtheprogramofreform.
15.1.2 South Australian major reformsStamp dutySouthAustralia(SA)commencedstampdutyreformsin2015-16,followingthereleaseofataxreviewdiscussionpaperearlyin2015,reducingitstaxesoncommercialproperties.TheSAstampdutyreformsfocusedonreducingthetotaltaxburdenonbusinessesinthatstatetofacilitateeconomic development and investment.
Thekeyoutcomeofthereforms,whichdonotapplytoprimaryproductionorresidentialproperty,istheabolitionofstampdutyoncommercialpropertyoverthreeyears(throughreductioninrates),withabolitiontooccuron1July2018.Stampdutyonnon-realbusinessproperty(intellectualproperty,licencesandmechanicalplant)wasestablishedfrom18June2015.
Thereformsarestatedtocostabout$200millionperannumongoingfrom2018-19,comparedtoanestimated$853millionpropertystampdutyrevenuein2016-17.UnliketheACT,theSAreformswerenotplannedtobeoffsetbyincreasesinotherkindsoftaxation.
However,subsequentreforms,detailedbelow,haveorplantoputinplacetwonewtypesoftaxationthatmaypartiallyoffsettherevenueforgonethroughthestampdutyreforms.
Betting taxesFrom1July2017,SAhasintroduceda‘placeofconsumption’taxononlinebettingproducts.Essentially,thetaxrequirescorporatebookmakerstopayataxbasedontheamountofbetsplacedbyconsumersinSA.Thisdiffersfromtheusualmethodoftaxingcorporatebookmakers,whichtypicallychargedataxbasedonthelocationofthebookmakerratherthanthecustomer.WhiletheTerritorycontinuestomaintainitsexistingtaxesonbookmakers,otherstateshaveexpressedinterestinfollowingSA’smodelforbookmaker’staxes.
Theplaceofconsumptiontaxonwageringisexpectedtoraise$10millionperannuminSA.
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Banking taxesThe2017-18CommonwealthBudgetintroducedataxondepositsheldbylargebankinginstitutions.SAhassubsequentlyintroducedlegislationtoapplyasimilartaxatthestatelevel.
SAhasproposedamajorbanklevycalculatedonthesamebasisastheCommonwealthtax,butreflectingSA’sshareofAustralia’seconomicactivity.
Atthisstage,thelegislationhasnotyetbeenpassedbytheSAParliament.Themajorbanklevyisexpectedtoraise$417millionoverthenextfouryears.
15.1.3 Western Australia major reformsPayroll taxFrom1July2018,afive-yearincreaseinpayrolltaxforverylargeemployerswillbeputinplaceforfiveyears.Thepayrolltaxratewillincreaseto6 per centonemployerswithtaxablepayrollsexceeding$100millionbutlessthan$1.5billion,andincreaseto6.5 per centonemployerswithtaxablepayrollsexceeding$1.5billion.
Itisestimatedthat8 per centofallemployerswillbeeffectedbythisandtheincreasewillcollect$435millionovertheforwardestimates.
Point of consumption wagering taxFrom1January2019,aconsumptionwageringtaxatarateof15 per centofnetwageringrevenuewillbeintroducedtoreplacecurrentarrangements.EssentiallysimilartothetaxrecentlyintroducedbySA,corporatebookmakerswillpayataxbasedontheamountofbetsplacedbyconsumersinWesternAustralia(WA).Thisisexpectedtoraise$52 millionovertheforwardestimates.
State-based major bank levy WAhasannounceditwillcontinuetoconsideralternativerevenuemeasuressuchasthebanklevyintheabsenceofmajorGSTreformoriftheWAParliamentdoesnotpassanyotherrevenuemeasures.
15.1.4 Foreign owner surcharges across statesRecently,anumberofstateshaveintroducedstampdutyandlandtaxsurchargesonforeignbuyersorownersofresidentialland.Thistypeoftaxreformincreasestheoveralltaxburden,butcanachievemultiplepolicygoals,includingasatooltomanagedemandinlocalpropertymarkets.
Insomerespects,thesereformsrepresentanewkindofstatetaxation,asstatetaxestypicallydonottakeintoaccountthecharacteristicsofthetaxpayerinsettingthetaxrate,otherthanwhenprovidingconcessionaltreatment.
From1July2015,Victoriaintroduceda3percentstampdutysurchargeonforeignbuyersofresidentialproperty,andthissurchargewasincreasedto7percenton1July2016.Forthe2016landtaxyear,Victoriaalsointroduceda0.5percentabsenteeownersurchargeonlandtaxrates.Thelandtaxsurchargewasincreasedfrom0.5to1.5percentforthe2017landtaxyear.
NewSouthWalesintroducedasimilar4percentstampdutysurchargeonforeignbuyerson21June2016,anda0.75percentlandtaxsurchargeonforeignlandholders.Thestampdutysurchargewasincreasedto8percenton1July2017.
Queenslandalsointroducedasimilar3percentstampdutysurchargeonforeignbuyerson1October2016.SAwillintroducea4percentforeignbuyerstampdutysurchargeon1January2018andWAwillintroducea4percentforeignbuyerstampdutysurchargeon1January2019.
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15.2 Otherreforms15.2.1 New South Wales reformsAsummaryofkeyreformsinthepastfiveyearsincludes:
Payroll tax • Increasedthetax-freethresholdto$750000andremovedindexationofthethresholdfrom2013-14.
• IntroducedaJobsActionPlanrebate(2011-12),withprogressiveincreasestoprovideupto$6000forthehiringofadditionalemployees.Theschemewasalsotargetedatrecentlyretrenchedemployees(2014-15)andlimitedtobusinesseswithlessthan50employees(2016-17).
Stamp duty • Introduceda4percentsurchargeonforeignbuyerson(2016-17),increasingto8percenton1July2017(2017-18).
• Abolishedstampdutyonnon-landbusinessassets,unquotedmarketablesecurities,andmortgageduty(2016-17).
• Introducedexemptionsandconcessionsforfirsthomebuyersofnewandexistinghomes(uptoan$800000homevaluethreshold).
• Introduced(2012-13)andamended(2017-18)theNewHomeGrant,whichfrom1July2017providesa$10000grantforbuildingorpurchasingaanewhomeupto$750000.
Land tax • Introducedasurchargeof0.75percentonforeignownersin2016,increasingto2percent
in 2018.
• Introduced,butdeferredtheintroductionofanEmergencyServicesLevy(anddeferredthecorrespondingabolitionofinsuranceduty).
Insurance duty • Abolishedlendersmortgage,cropandlivestockinsuranceduty(2017-18).
• Exemptedbusinessvehicle,aviation,occupationalindemnity,andproductandpublicliabilityinsuranceforsmallbusinesses.
• Introduced,butdeferred,amendmentstotheEmergencyServicesLevyoninsurance.
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15.2.2 Victoria reformsAsummaryofkeyreformsinthepastfiveyearsincludes:
Payroll tax • Tax-freethresholdwillprogressivelyincreasefrom$550000to$650000by2018-19.
• Payrolltaxratereducedfrom4.9to4.85percent(2014-15).
• Introduceda‘backtowork’payrolltaxrebate(2015-16)andrebatefordisplacedtraineesandapprentices(2016-17).
• Introduceda25percenttaxconcessionforregionalbusinesswhereatleast85percentoftheirpayrollgoestoregionalemployees(2017-18).
Stamp duty • Introducedaforeignbuyersurchargeof3percentin2015-16,increasingto7percentin2016-17.
• Increasedfirsthomebuyerconcessionsandexemptionsprogressively,withexemptionsandconcessionsofferedforpropertiesvaluedupto$750000.
• Limitedfirsthomebuyergrantstonewhomesonlyandincreasethegrantto$10000,or$20000forregionalhomebuyers(2017-18).
Land tax • IntroducedaFireServicesLevy(withafixedandvariablecharge)onlandtoreplacechargesoninsuranceproducts(2013-14).
• Introducedanabsenteeownerlandtaxsurchargeof0.5percentinthe2016landtaxyear,increasingto1.5percentin2017.
• Introducedsurchargesonvacantresidentialproperties(2018landtaxyear).
• Expandedcongestionleviesonparkingspacesintheinnercityandsurroundingareas(2013-14and2014-15).
• Introducedsurchargesondevelopmentapplicationsforconstructionprojectsover$1million.
Insurance duty • Abolishedlifeinsuranceduty(2014-15).
• Abolishedinsurancedutyoncrops,livestockandagriculturalmachinery(2017-18).
Motor vehicle taxes • Increaseddutyratesby0.2percent(2014-15).
• Increasedregistrationfeesby$35(aboveindexation;2014-15).
Gambling taxes • Reducedwageringtaxesinlinewitharenegotiatedwageringlicence.
• Gamingmachinetaxratesandstructureredesignedin2012-13andincreasedin2014-15.Playerreturnreducedin2014-15from87to85percent.
• Casinotaxesprogressivelyincreasedto32.57percentin2014-15.Casinosupertaxthresholdsareindexedandincreaseovertime.
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15.2.3 Queensland reformsAsummaryofkeyreformsinthepastfiveyearsincludes:
Payroll tax • Tax-freethresholdincreasedto$1.1million(2012-13).
• Introducedandincreasedrebatesforapprenticesandtrainees(2015-16).
• IntroducedarebatefornewcompaniesthatsetupinQueenslandaspartofAdvanceQueenslandresearchprograms(2015-16).
Stamp duty • Introducedaforeignbuyersurchargeof3percent(2016-17).
• Retargetedfirsthomeownergranttonewhomesonly,increasedto$20000until2018.
Land tax • Introduceda1.5percentabsenteeownersurcharge(2017-18).
• Expandedtheurbanfirelevytofundemergencyservicesthroughanemergencyserviceslevy(2014).
Insurance duty • Increasedinsurancedutyforclass1and2insuranceproductsto9percent,from7.5and5percentrespectively(2013-14).
Gambling taxes • Variousincreasestogamingmachine,casinoandhealthservicestaxes(2012-13).
• Renegotiatedwageringtaxagreement,withageneraldecreaseintaxrates.
Motor vehicles taxes • Registrationfeesinitiallyfrozenforoneyear(2012-13)butlaterincreasedby3.5percent(2017-18)andindexed.
15.2.4 Tasmania reformsAsummaryofkeyreformsinthepastfiveyearsincludes:
Payroll tax • Tax-freethresholdincreasedto$1.25million(2013-14).
• Employmentincentiveschemesprogressivelyimplemented,providingconcessionstoemployerswhocreateandmaintainnewemploymentpositions.
• Introducedarebateforapprentices,traineesandyouthemployeesbetween2017and2019.
Stamp duty • Conveyancedutyratesandthresholdsincreased(2012-13).
• Firsthomeownergrantincreasedandretargetedtonewhomesonly.Temporaryboostgrantsintroducedandextendedprogressivelytoacombinedtotalof$15000.
Insurance duty • Insurancedutyratesincreasedfrom8to10percent(2012-13).
Motor vehicle taxes • Motorvehicletaxincreasedby20percent(2012-13).
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15.2.5 Other ACT reformsOtherreformsintheACTinclude:
Payroll tax • Increasedthepayrolltax-freethresholdfrom$1.75million(2011-12)to$2million(2016-17).
Stamp duty • Introducedadeferredstampdutyschemetoallowstampdutytobepaidafterapropertyistransferred.
• Retargetedstampdutyconcessions,includingincreasingthethresholdfortheHomeBuyerConcession and Pensioner Duty Concession Scheme.
• TemporaryincreasestotheFirstHomeOwnerGrant(returningto$7000in2017-18)andretargetedtonewhomesonly.
• Introducedastampdutydiscountforlow-emissionvehicles(2015-16).
15.2.6 Other SA reformsOtherreformsinSAinclude:
Payroll tax • Introducedatemporarypayrolltaxrebateforsmallbusinesses(2013-14),followedbyareductioninthetaxrateforsmallbusinessesto2.5percent(2017-18).
• Removedpayrolltaxexemptionsforapprenticesandtrainees,replacedwithdirectassistanceschemes.
• IntroducedaJobAcceleratorGrantSchemetobusinessesthatemployadditionalstaff.
Stamp duty • Providedstampdutyconcessionsforinnercityoff-the-plandevelopments(2013-14).
• Firsthomeownergrantschemelimitedtonewhomesandincreasedto$15000,withadditionaltemporaryhomepurchasegrantsprovided.
• Introducedan$8500seniorhousinggrant(2014).
Land tax • Introducedalandtaxexemptionforoff-the-planpurchases.
Gaming taxes • Casinolicencerenegotiatedandtaxratesadjusted(2014).
15.2.7 Other WA reformsOtherreformsinWAinclude:
Payroll tax • Tax-freethresholdprogressivelyincreasedto$850000andataperingthresholdupto$7.5millionwasintroduced(2015-16).
• One-offrebateforemployerswithAustralia-widegroupwagesofupto$1.5million(2013-14)providedtooffsetpreviousyear’spayrolltaxliabilities.Rebatephasesoutforemployerswithwagesbetween$1.5millionand$3million.
• ExemptionsprovidedforwagespaidtonewemployeeswithadisabilityorAboriginalemployees(2012-13).
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Stamp duty • Increased home buyer stamp duty concessions.
• Firsthomebuyergrantincreasedto$10000andprogressivelylimitedtonewhomes(2015-16).
Land tax • Progressivelyincreased,withvariouschangesmadetovaluescalesandtaxrates.
• Parkinglevyincreasedincrementally.
• ExpandedtheMetropolitanRegionImprovementTaxtoregionalareas(2016-17).
Gaming taxes • Variouschangestoracingbetslevy,subjecttooperatorturnover.
• Gamingmachinetaxesprogressivelyincreasedto21.5percentby2015.
Motor vehicles • Privatevehicleregistrationconcessionprogressivelyreduced,andabolishedby2014.