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Treasurer – Own-Source Revenue

Dr Rosalie Woodruff MP

Dr Rosalie Woodruff MP  -  Tuesday, 7 June 2022

Tags: Treasury, State Budget

Dr WOODRUFF - Treasurer, a significant issue our budget has always faced is its relatively low proportion of own-source revenue. Under your Government own-source revenue has declined from 39 per cent of overall revenue in 2014 15 to 35.9 per cent in 2021 22 and to 35 per cent in 2022 23. As Finance minister, you have added to this problem by twice reducing land taxes. Given, as you have just said, that we are in a borrowing phase, are you satisfied with your continual erosion of our revenue-raising capacity?

Mr FERGUSON - I will get the secretary to assist here. Thank you, Dr Woodruff, for the question and your observations. It is important that any state worth its salt should be ensuring that our level of taxation on Tasmanians and on businesses is appropriate and competitive going forward. We have had pretty extensive debates in the parliament around modernising our state-sourced taxation arrangements, including incentives for pensioners downsizing or first home owners buying their first home and ensuring that our land tax treatment is sensible and reflecting what is changing in the economy in terms of property prices. I am satisfied with the approach we have taken on that and of course parliament itself has given its consent to those arrangements.

Dr WOODRUFF - Okay. Interesting that you don't provide any basis for why you're happy with eroding that capacity. In Treasury's 2021 fiscal sustainability report, they note that the Australian Government often links funding to a requirement for state funding contributions, noting that lowering own-source revenue can impact on the ability of our state to attract Commonwealth funding. Do you acknowledge that declining own-source revenue through your hand as finance minister can snowball into reducing Commonwealth funding as well?

Mr FERGUSON - Thanks for the question. I'll invite the secretary to respond as well, I don't hold that concern. The state has demonstrated a remarkable ability to attract Commonwealth funding for infrastructure projects and also government services in health and education.

The budget papers are quite open and transparent around the risks that exist, including GST arrangements going forward, where state taxation is not a factor other than determining some of the relativities. But, broadly, the risks around health reform funding going forward is something we've also noted. The risk of the federal government not honouring its commitments around increased and matched funding around growth spending in health. But I'm not aware of any concerns that we should be alert to right now around the state's ability or inability to attract federal funding because so far we've been very successful in that space and I intended to continue to be so.

I will acknowledge, because the beginning of your question I will agree with, that it is important that the state does have strong ability to raise revenue within the state in a sustainable and fair way amongst taxpayers. I won't walk away from the commitment that I've made to ensure that our state is competitive as well, because we want to attract investment, while at the same time not erode our revenue base. That's something that is important to all of us.

Dr WOODRUFF - But you have eroded our revenue base.

Mr FERGUSON - We've had a parliamentary debate around land tax, and also other incentives around payroll tax exemption to attract young workers and apprentices. We've had debates in parliament about ensuring that land tax, going forward, is competitive and within cooee of what other states are charging so that we can have continued investment in Tasmania.

I appreciate where you're coming from but we are protecting our revenue base while, at the same time, we've made tax cuts that are very defensible, especially when you recognise the rising values of land and property around Tasmania. We needed to make sure that our taxation recognised the changes that have occurred in the marketplace.

Dr WOODRUFF - Since your Government has come to office, since 2014, there's been a federal Liberal government. Now there's a change in federal government, the Labor Party may not be so keen to do special deals for the Tasmanian Liberal Government. It may not necessarily be the case that they will overlook the sort of issues that I'm raising about the erosion of our revenue-raising capacity, for example. We've got investments locked in, in the pipeline that you said has been supported by the incoming government. But, in future, do you accept that there's a risk to attracting that investment because you've been eroding our revenue-raising capacity?

Mr FERGUSON - I'll ask the secretary if he's aware of any risks. I don' t believe there are. Nor do I believe that the federal Labor government will deliberately set out to harm our future in respect of future grants. I've had a friendly conversation with the new federal Treasurer, Mr Chalmers, and we've agreed to work together for the benefit of Tasmanians. I don't perceive the risks that you're asking me about. Secretary?

Mr FERRALL - I am certainly not aware of any change in risk profiles due to the change in federal government. Over a long period of time it really doesn't matter what the persuasion of the federal government and the state government is. You tend to do about the same regardless.

I think your earlier comment around state revenues may have related to the paragraph in the fiscal sustainability report which indicates that own-source revenues are more flexible generally than some of the Commonwealth funding because the Commonwealth tends to have tied arrangements or requires the state to invest in particular areas. I think the point you were indicating may have been related to that in terms of the flexibility of own-source funding as opposed to joint funding with the Commonwealth.

Dr WOODRUFF - But you don't disagree with the Treasury's report, the 2020 21 fiscal sustainability report, and its note about the additional risk with lowering own-source revenue in terms of attracting Commonwealth funding?

Mr FERRALL - I am unsure of what you mean by lowering causing a risk to attracting Commonwealth funding. As I said in terms of the report, what we did indicate was that state-sourced funding, own-source funding, is totally flexible to the state whereas if you are receiving Commonwealth funding, it may be, or can be, tied funding, which tends to have less flexibility and, in some cases, may not be directed towards state priorities. That was the paragraph I think you were indicating, that was the intent of that paragraph.

Dr WOODRUFF - The no worse off guarantee from the GST rearrangement of the horizontal fiscal equalisation formula between states expires in 2026-27. Our source revenue as is declining as we've just talked about. How can Tasmanians escape the conclusion that your land tax cuts are populist and fiscally reckless? It seems like you're dismissing this as a problem for the majority of Tasmanians who will be affected by our incapacity to put money into other things in the Budget?

Mr FERGUSON - You need to raise the right amount of taxation to support the state's services such as health, education, and the like, but in a way that's competitive as well. You can't tax your way into prosperity. If you accept that point, then we're acting responsibly and making sure that we protect our revenue base while at the same time ensuring that we're able to lay out an environment that's attractive to investors to make their decisions to bring their businesses here and invest, or even bring their family here and work and be educated here. That would be my answer to that. It has been subject to a thorough parliamentary debate. I'm sure that if ever we were to look at adjusting land tax in the future, we'd have the same kinds of debates. It needs to be appropriate to the circumstances.

Dr WOODRUFF - The evidence is that people are falling over themselves to move to Tasmania and buy properties, so your argument doesn't stand.

Mr FERGUSON - How so?

Dr WOODRUFF - There's no need to attract investors. We have investors throwing themselves at Tasmania for lots different types of investment.

Mr FERGUSON - Doesn't that tell you our policies are working?

Dr WOODRUFF - The issues are the choices you've made in the Budget, and how you're leaving Tasmanians worse off in the future. I'm concerned about the GST deal expiring in 2026. I'm wondering if you're actually just pushing this down the road for another Treasurer? How has this Budget prepared us for the expiry of that 2026-27 guarantee?

Mr FERGUSON - I'm sorry I missed that part of the question last time. The Government is going to work like a dog with a bone to ensure that the no worse off guarantee is made permanent. It's necessary in our view that that be the case. In terms of electoral cycles, we're not close to the 2026-27 financial year, but I'm not going to wait. We've been clear as to our disposition. For the benefit of those who might be wondering why these statements are being made now: I made these statements in the week before the federal election as well. It wasn't reported, but I was out there saying it on the lawns behind me.

This is about making sure Tasmania is not disadvantaged beyond the period of the no worse off guarantee. I'm sure I can rely on members in our parliament from across the parties to agree on this. We need to secure that beyond 2026- 27 regardless of who's in power federally. It's a strategic must-have for our state. I see two options. One is reverse the deal, and bring it back to what it was before: genuine HFE. Or, ensure the no worse off guarantee is everlasting.

Dr WOODRUFF - We have a situation, with the likely increasing energy boom in Western Australia, with lithium and other renewable minerals, that Tasmania is going to be far worse off than we thought we would be. Saul Eslake warned of this in 2018. Then-Treasurer Peter Gutwein agreed that the deal that was struck by COAG would benefit Tasmanians. Are you prepared to say to Tasmanians today that that deal doesn't benefit us and unless we can secure the deal that you're saying, we're in a really dark place in our forward Estimates?

Mr FERGUSON - No, I wouldn't be conceding those points but I have been a member of this Government for some time and am very familiar with the attitude and statements of the former premier and treasurer. It was acceptable only in respect of the fact that initially then there was no guarantee on no-worse-off payments and when that was included in the proposal it was more acceptable and we accepted the no-worse-off guarantee, but we've always argued and we've continued to argue that the risks of the new arrangements are not fixed term, they are ongoing, and the guarantee should be a permanent arrangement. That is my position as well going forward. I've shared that view with the new federal Treasurer to add to his burdens of no doubt many responsibilities he's been briefed on, but one of the must-do items on the to-do list for the Albanese Government is to resolve this matter in a way that is fair for the whole country, not just for one state.