The Productivity Commission has called for an overhaul of Australia’s remote area tax concessions and payments including the zone tax offset (ZTO), the remote area allowance (RAA) and the fringe benefits tax (FBT) remote area concessions, so they are better targeted and fairer.

‘Tax concessions and payments for residents and businesses in remote Australia are outdated, inequitable and poorly designed’, Commissioner Jonathan Coppel said on release of the Productivity Commission’s draft report on Remote Area Tax Concessions and Payments.

The Commission’s assessment is that the ZTO should be abolished. Remote Australia has changed considerably since the ZTO was introduced in 1945. Some eligible areas, like Cairns, Townsville and Darwin, are no longer remote. And the ZTO has little influence on where people live or work.

‘More fundamentally, there is no clear role for Government to compensate taxpayers for the disadvantages of life in remote areas. Many ZTO recipients are already compensated by higher remuneration and many enjoy the nature and pace of remote living’, Mr Coppel said.

With respect to the RAA, the Productivity Commission finds that it still has a legitimate role but needs a refresh.

The RAA is a small top-up for welfare recipients in remote areas, to help cover high living costs. The majority of recipients are from areas with socio-economic disadvantage and most do not benefit from the higher wages that apply to many ZTO recipients.

‘The RAA boundaries date back to the early 1980s and need updating, and the payment rates are overdue for a review’, Mr Coppel said.

FBT was introduced to prevent remuneration ‘in kind’, such as housing, from being used to lower income tax. But sometimes, remote area tax concessions are needed to make the tax equitable, particularly where there are operational reasons to provide these ‘benefits’.

‘When we pulled together the evidence we found that the current concessions are overly generous and complex’, Commissioner Paul Lindwall said.

‘Being broad-based concessions, they are also a blunt tool for regional development and not a cost-effective way to get employees or employers to move to, or invest in, regional areas’, he added.

These concessions should be better targeted. ‘Most significantly, the current exemption on employer-provided housing should revert to a 50 per cent concession (as it was before 2000)’, Mr Lindwall said.

The Commission does not recommend changes to remote area FBT concessions related to fly-in fly-out.

The Productivity Commission was tasked by the Government to assess the effectiveness of remote area tax concessions and payments. The draft report is now open for submissions until Friday 11 October 2019. The final report is expected to be handed to the Australian Government by February 2020.


Further reading

Area-Specific Subsidies and Population Dynamics: Evidence from the Australian Zone Tax Offset, by Nathan Kettlewell and Oleh Yerokhin (3 June 2019)

Comments are closed.