Returning income taxation revenue to the states: Back to the future

This article examines the merits of taxation reform to return income taxation revenues in whole or part to the states. In 2016, the Australian Prime Minister, the Honourable Malcolm Turnbull MP, proposed an income taxation sharing arrangement between the Commonwealth and the states which would allow the states to levy a proportion of income taxation. This proposal was rejected by all Australian states (with the exception of Western Australia) at the Council of Australian Government (COAG) meeting in April 2016. However, once again, the issue has become relevant amid renewed calls for a more equitable sharing of Commonwealth goods and services tax (GST) revenue between the states. Indeed, the inequitable redistribution of GST revenue has contributed to renewed calls for states like Western Australia to secede from the Australian federation. Additionally, together with the continued deterioration of state revenue bases, the authors argue that the issue of restoring income taxation powers to the states is worthy of reconsideration and has a number of benefits in terms of subsidiarity. These include increasing state financial autonomy, and providing for a more stable, simple and predictable state budget framework that would result from a known revenue stream.