The rise of industry levies – narrowly applied, sector-specific taxes – is creating an increasingly complex and inefficient tax system that risks limiting productivity growth, according to Productivity Commission research released today.
The report finds that the number of these industry levies has quietly grown from 26 to 248 since 1980 to become the ‘long tail’ of Australia’s tax system, collecting less than 2% of overall tax revenue.
“Without anyone noticing, these micro-taxes have compounded into a bureaucratic ‘Levyathan’. Limiting their growth in favour of more efficient taxes is a simple, actionable reform that could make a material difference to productivity growth,” said Deputy Chair Dr Alex Robson.
Levies were originally introduced in the agriculture sector to raise funds for activities that benefit producers, but they are now being imposed by policymakers on a wide range of industries, in some cases as a way of simply raising general tax revenue.
While many levies are nominally collected to cover the cost of government regulation or mitigate environmental costs, these goals could often be pursued more effectively and efficiently through the broader tax system.
“Taxes work best when they are simple and efficient – but many industry levies are relatively expensive to collect, unnecessarily distort business activity and waste the time and resources of business and government,” said Dr Robson.
The report highlights some startling examples of this inefficiency, including a list of 70 agencies around Australia involved in administrating or collecting industry levies and a stocktake of levies ranging from the billion-dollar Major Bank Levy to the $25.62 in revenue raised from levies on wild goat carcasses in 2022.
The analysis raises concerns that policymakers may be using levies as a politically expedient way of raising additional revenue that can be managed by an individual portfolio minister or department, with little regard for the impact they may have on the tax system as a whole.
“The cost of levies is almost invisible to the average taxpayer – people notice when income taxes rise, but no-one appears to notice when a levy is passed on by their insurance provider. It is little wonder then that policymakers might see a new levy as a good way to raise revenue even when better policy options might be available,” said Dr Robson.
The report presents a rigorous, straightforward framework for determining when a new levy can be justified.
“If governments can’t restore policy discipline to the design and implementation of these levies, our chance of a more efficient tax system that fosters productivity growth risks death by a thousand micro-taxes.”
When released, this publication can be accessed from the Commission’s website at www.pc.gov.au.
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