Commonwealth must step up to drive national tax reform: Chris Steel

ACT Treasurer Chris Steel says the Commonwealth needs to do more to help fix Australia's multilayered tax system, as he warned the national bargain was being eroded by pushing more costs onto cash-strapped states and territories.

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ACT Treasurer Chris Steel. Picture by Karleen Minney

Mr Steel said the Commonwealth's shift from funding 80 per cent of a large project to only half meant states and territories were forced to direct limited revenue away from essential services.

But cuts and borrowing were not a credible long-term or permanent solution for states and territories that need to meet the needs of a growing and ageing population, he said.

Mr Steel said the Commonwealth had the power to enable the next generation of state tax reform, including by offering performance payments for changes that delivered national benefits.

"If revenue follows responsibility, if reform is supported rather than penalised, and if governments approach these challenges as partners, Australia can emerge with a stronger federation and a stronger economy," Mr Steel said in a speech on Wednesday.

"That is a national project worthy of our ambition."

In the wide-ranging speech to the Australia Institute's revenue summit, Mr Steel said improvements to the ACT's taxes were politically difficult but showed it was possible to build a more efficient and equitable system.

"That opportunity should be available to every jurisdiction. The task before us is not merely to protect state budgets. It is to renew the fiscal foundations of the federation so that every government can deliver for the Australians they serve," he said.

Mr Steel said the Commonwealth was imposing more conditions on money it hands to the states and territories.

"More and more this is limiting state service delivery options and innovations, all the while leaving states and territories to carry the financial risk," he said.

"Then [the Commonwealth] assumed responsibility for progressing a national approach to road user charging but have not yet provided the assurance that any resulting revenue will flow back to the jurisdictions to fund our roads," he said.

"I make the prediction today that the Commonwealth will never introduce a road user charge for light vehicles in this country, at least this decade."

Australia needed a national road-user charging framework with a fair distribution of the taxes it collected, he said.

"Foundational supports can improve outcomes and make the broader system more sustainable. But reform will endure only if responsibilities, design and funding are agreed genuinely between governments, rather than transferred through decisions made by one level of government," he said.

"These pressures will intensify as Australia's population grows and ages. This is not a reason for pessimism. It is a reason for preparation. A mature federation anticipates change, funds responsibilities transparently and gives every jurisdiction the confidence to invest for the long term."

"The ACT shows what sustained revenue reform can achieve. As a small jurisdiction without natural-resource revenues, we have had to build a tax base that is efficient, fair and resilient. This has supported long-run, exceptional growth levels, and some of the highest rates of labour productivity and workforce participation in the country," he said.

The charge collects a share of the value of land when the value goes up because it is rezoned.

The research institute's report estimated $11 billion in community-owned development rights was being given away to private landowners free across Australia each year.

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