Garnaut Fitzgerald Review of Commonwealth-State Funding

CHAPTER 6: Comparative Fiscal Positions
6.4 Special features of the Australian
Capital Territory
There has been much discussion of the apparent anomaly that the Australian State with
the highest per capita income – the Australian Capital Territory – receives interstate
transfers.
The prominence of Commonwealth Government activities in the Australian Capital
Territory, and the exemption of its activities from State taxation, leads to a revenue loss
that exceeds the general purpose grants it receives in excess of its per capita share.
The exclusion of the Commonwealth Government from payroll tax liability affects the
capacity of the States to raise revenue from this source. The Australian Capital Territory
is most affected by this exclusion, and its loss of revenue is estimated at $326 million in
2000–01. This section discusses the special position of the Australian Capital Territory
in relation to its potential to raise revenue.
FIGURE 6.9: Estimate of revenue loss from payroll tax exemption, 2000–01
350
300
250
$ million
200
150
100
50
0
NSW VIC QLD WA SA TAS ACT NT
Source: CGC 1998
Removing the mutual exemption of the two layers of government from each other’s
taxation has been discussed widely. There would be advantages in removing the
exemptions, and taking this step would immediately move the Australian Capital
Territory from the list of recipient States.
FINAL REPORT [87]