The payroll tax that dare not speak its name

In any case, the total value of residential, rural and commercial land in mid 2009 was $2821 billion [ABS 5204.0 Tab.61], and if this is taken as the base, the required rate is 1.75% per annum.

For a non-retired home owner with a land value of $300,000, the new superannuation charge would be $5250 per annum. In the case of land purchased before the reform and still mortgaged, the lender would pay the charge for its part of the equity in the land. For the rest, the owner would be compensated by a fall in prices (comparable to abolition of the GST) and better job opportunities.

One statement omitted from the above "redacted" quote concerns the American payroll tax, of which Friedman said: "You cannot conceive of that tax being enacted by itself as part of a financing program."

In Australia we not only conceive of it, but actually do it: payroll tax, called by its proper name and used for general revenue, is the mainstay of State budgets.

So, for interest's sake, let us estimate the rate at which the "least bad tax" would replace the payroll tax that does speak its name.

In 2009/10, Australian State and Territory governments collected a total of $16.8 billion in payroll tax [ABS 5506.0]. On the same land-value base as above, the required rate is 0.6% per annum. This is a weighted average for the whole of Australia; individual States and Territories could deviate from the average.

In this case, because State payroll taxes are paid by retirees (through prices of goods and services) but not earmarked for their benefit, there is no argument for excluding residential land owned and occupied by retirees from the alternative revenue base.

But, as with council rates, there is a strong argument for allowing "asset-rich, income-poor" owners, presumably including many retirees, to defer some of the payment until the land is next sold (which, if the land is bequeathed, would mean the first sale after the bequest).

So the substitute for payroll tax could be implemented as a State surcharge on council rates. The additional 0.6% per annum would apply to the land value only, not the combined value of the land and building(s).

If State payroll taxes were replaced by annual charges on land values, the result would be more jobs, better pay, lower prices, and improved international competitiveness.

If the federal payroll tax masquerading as the Superannuation Guarantee, which raises almost three times as much revenue as State payroll taxes, were similarly replaced, the benefits would be proportionally greater.