If the necessary contribution to "general revenue" is paid by employers instead of the Superannuation Guarantee, it will not require employers as a class to find any additional income, and will therefore not cause any overall rise in prices. Again, if that contribution is levied on anything but labour, it will preserve the desired reduction in the cost of labour as seen by employers, without reducing the workers' take-home pay.
The third-biggest reverse tariff, and the third-biggest reason why the cost of hiring a worker exceeds the worker's take-home pay, is State payroll tax.
Accordingly, under this Budget, the Commonwealth will use its conditional grants power to compel the abolition of State payroll taxes from 1 July 2013. The States will be compensated by increased grants from the Commonwealth, funded out of general revenue.
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Under Australia's constitutional arrangements, the primary responsibility for public investment in infrastructure rests with the States, which delegate some of that responsibility to local councils.
The benefit of a public infrastructure project is manifested in higher property values in locations served by the project. More precisely, it is manifested as uplifts in site values, which are also loosely called land values or unimproved values. So, if the tax system captures a sufficient percentage of each uplift, the project will pay for itself by expanding the revenue base, without increasing tax rates, and without burdening taxpayers who don't share in the benefit.
Accordingly, from 1 July 2013, Commonwealth grants to the States will be subject to the following conditions:
First, the States will require local councils to raise at least 80% of their own-source revenue from general rates on site values, with effect from 1 July 2014. The new rating system won't penalize construction. To ease the transition, year-on-year percentage increases in general rate bills, including any increases that coincide with the change in the rating system, will be capped in real terms.
The caps will be determined by local councils -- not imposed from above. In addition, councils will be given the unfettered right -- if they don't already have it -- to defer rate payments from property owners who are asset-rich but income-poor, until their properties are sold in the normal course of events. No home owner should be forced to sell in order to pay rates.
Second, insurance taxes, emergency service levies, conveyancing stamp duties, betterment levies, infrastructure levies on developers, and the existing land tax (not to be confused with local rates) will be abolished.
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Third, in lieu of the abolished taxes, the States will levy a "vendor duty" on all capital gains on property realized after 1 July 2013.
Property owners who have paid the old stamp duty more recently will be automatically compensated because their capital gains will be smaller.
As buildings don't appreciate in value, except by way of capital expenditure which is deductible against capital gains, the vendor duty will automatically avoid penalizing construction. The rate of the vendor duty, and whether that rate is applied to real or nominal capital gains, and whether there are any concessions for the family home or any transitional arrangements for properties purchased before tonight, will be matters for the individual States.
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