These are taxing times for NSW business

It is almost certain that the NSW Government will mark 2008 as a year best forgotten.

The state witnessed political instability at the top, with the ousting of premier Morris Iemma and his treasurer Michael Costa after their failure to head off objections by unions to the mooted electricity privatisation.

The state economy had also been painfully ground towards a halt.  The global financial crisis and severe economic slowdown at home had seen NSW growth projections cut by a full percentage point for this financial year.  This pared-back growth is already delivering pain to many households, and the official forecast is for a rise in unemployment in 2008-09.

These factors, some due to the Government's own mismanagement, have contributed to an unprecedented state budget meltdown.  From a projected surplus of $268 million to a deficit of $917 million, this $1.2 billion turnaround sparked a feverish set of policies to arrest the budget decline.

One area affected by policy on the run is new and increased taxes.  But to assess the impact of new measures, it is essential to know where NSW already stands on tax issues.  Is it a high-tax or low-tax state?  Is NSW already taxing businesses too heavily as it is, without fresh tax hikes in the mini-budget?

To help answer these questions, we have developed a state business tax calculator.  This calculator estimates the amount of tax paid by a business if it were to operate in any of the six states.  It sheds light on which states are the most competitive on the tax front.

Using a method employed by the World Bank, our calculator finds that NSW assumed the unwanted position as Australia's highest-taxing state.  A business would have expected to paymore than $222,000 in payroll tax, land tax and stamp duties in 2008.  This tax liability was about 7 per cent above the average of all states, and 14 per cent above the low-tax state of Western Australia.

While the June budget announced some immediate payroll tax relief, 2008 could be seen as a case of two steps forward, one step back as the mini-budget foreshadowed increases in land tax and a deferral of abolition for nuisance taxes.

However, our calculator shows that NSW is already the high tax state.  The reality, then, is more like two steps forward, three steps back on tax.

Ultimately, the mini-budget tax increases are a flawed strategy as they blunt incentives for business to kick-start growth, investment and employment.  Our analysis clearly shows that small and large businesses are particularly affected by transaction-type taxes.  Even IPART, a government statutory body, recommended the reduction or elimination of these anti-business taxes.

By the end of 2008, tax hikes had become the order of the day for the Rees Government.  The new year would be off to a much brighter start if it took strong action towards making NSW a low-tax state.

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