There is not enough money in the kitty for the states to abolish inefficient state taxes such as payroll, but harmonising state duties over the next few years is a start, Queensland Treasurer Andrew Fraser says.
Kicking off the second session of the tax forum in Canberra, Fraser recommended harmonising the components of state taxes which "can and should form part of the tax system for the future."
"Not edge towards harmonisation of components but uniform legislation that leaves only the rates and thresholds to be set competitively by each state."
"We should start with payroll tax and then move to land tax," Fraser said, nominating July 1 as the starting date for his proposal.
"Running separate regimes across state boundaries in a nation of this size is a construct of our history, not the grand design."
"The states don't have the immediate capacity to fund reforms being wished for," Fraser said, adding that state taxes account for 20% of taxes overall, dwarfed by federal taxes.
The harmonisation push received in-principle support from NSW, Victoria and Western Australia.
Tasmanian Premier and Treasurer Lara Giddings concurred that if states could rid of taxes such as insurance tax, payroll tax and stamp duty, they would.
"At the stage where we have no room to move unless we get further reforms," Giddings told the panel.
The welcome payroll tax push came after venture capitalist Mark Carnegie used the first session of the forum to declare that governments would undo many of the tax burdens they place on small business if they understood how they really operated, venture capital Mark Carnegie says.
Carnegie, executive director of M H Carnegie & Co, said if governments knew what it was like to be in small business there is no way they would draft legislation the way they do."
Speaking of his experience dealing with business people looking for capital Carnegie said the current system is a nightmare for creative people."
He was responding to complaints by the Council of Small Business of Australia about the time SMEs spend doing government work, namely distributing superannuation payments and paid parental leave.
COSBOA executive director Peter Strong told the Tax Forum the role of Australia's two million-plus small business people in the tax system was being ignored.
"You haven't mentioned the people who collect tax," Strong said, concurring with Australian Chamber of Commerce and Industry chief Peter Anderson that reform of capital gains tax was necessary, particularly for small business.
"There is an equity issue on the table at this tax forum," Anderson said.
He also drew attention to state taxes and payroll tax, and refuted suggestions that cutting the company tax rate was only a self-interest proposition.
"It's not just businesses that benefit from removing cost pressure from business," Anderson said.
In response Treasurer Wayne Swan expressed sympathy for ACCI's views on constraints on business, particularly small business.
Nominating the government push to change the instant asset write-off and last week's announcement on tax carry back from the previous financial year, Swan said many more of those things need to be done."
In his introductory address at the two-day forum Swan defended the Labor Government's record of tax reform in divisive and difficult circumstances.
Swan said none of the 32 Henry Review reforms introduced by the Government have been easy, highlighting moves to cut company tax, to introduce the mining resource rent tax, to target small business through the instant asset write-off and to triple the tax-free threshold.
"None of these reforms at any stage have been easy," Swan told the 200-strong audience.
"But they are important. And what they demonstrate is that they take time ... and it can be a hard slog."
Swan cautioned forum participants against coming forward with expensive or unfunded recommendations or expecting quick fixes to flaws in the system.
Hinting at some of the divisive tax issues that have afflicted the former Rodd and now Gillard Governments, Swan said all of us have learned over the past few years that we should spend more time appreciating each other's views."
He said addressing negative effects of the resource boom should be at the core of deliberations over the two days, emphasising opportunities for sectors hurt by Australia's high terms of trade and strong dollar.
"The middle class in the Asia Pacific is growing by 110 million a year and this means opportunities for tourism, education and manufacturing," Swan said.
This article first appeared on SmartCompany.