By MARK BOWLES

TCCI Chief Economist

DEATH and taxes. Said to be the only certainties in life but is raising taxes the answer to the ever-increasing cost of government services?

The Greens leader Nick McKim was correct when he told a recent rally that you cannot divorce the discussion about community expectations for government services from the one about revenue raising.

Mark Bowles - TCCI Chief Economist

There are several options for matching State Government services and revenue. These include taking on debt, more federal funding, raising taxes, growing the economy, improving efficiency, and challenging community expectations.

Anyone with an eye on the current social fracturing taking place in Europe can see that using debt to fund services for an ageing population is not a smart idea.

Closer to home, there will be a shake-up in federal financial relations. However, it is unlikely Tasmania will be better off. While we should argue the case for increased federal funds for Tasmania, especially for infrastructure, the national mood is for more GST revenue to be retained by the larger states, not for more redistribution.

In addition, while federal health reforms are in the pipeline, they will only ease pressure on State coffers if our hospitals operate within nationally efficient benchmarks.

Raising taxes might seem like an easy solution to the current woes. However, an important detail of the tax debate is that the burden of state taxes falls on the workforce, through higher prices and lower wage growth. The exception is land tax, which is shared between landowners and tenants. This was a conclusion of the Henry Tax Review.

This means that it is near impossible for the State Government to increase taxes without also raising the cost of living for those who can least afford it.

Secondary effects of new or higher taxes include less investment and slower economic growth. As we are now witnessing, a slower economy means less government tax revenue. So we would end with a spiral of ever-higher taxes and a shrinking economy.

We are left with three key ingredients to sustain Government services:

One, pursue unashamedly pro-growth policies that allow business to flourish, generating the jobs and wages from which taxes are paid.

Two, improve efficiency by binding public sector wage growth to productivity gains and by cutting ineffective programs, including those pretending to support business.

Three, challenge community expectations. For example, why is it that even the richest in our community can get “free” healthcare, limited only by how long they are prepared to sit in a hospital waiting room?

There are many ways for Government to deliver better community value. Higher taxes are not among them.