A new report released by the Productivity Commission has warned that Australia is falling victim to a “bureaucratic Levyathan” where the “micro-taxes” are distorting business activity and materially impacting productivity growth.
The Productivity Commission (PC) put the proposed Biosecurity Protection Levy under the microscope and found it failed to pass eight out of 11 “warning signs” in a framework to determine if the levy qualified as creating a sectoral public good.
The Biosecurity Levy is held up for a case study against PC’s “rigorous, straightforward framework for determining when a new levy can be justified.”
For primary producers, the levy is proposed to be 10% of 2020-21 agricultural levy rates, and a comparable metric for primary producers that do not currently pay an industry levy, with a total overall increase in biosecurity funding from $536.2 million to $804.6 million in 2024-25. That total package includes levies on imports, outbound passengers and appropriations from general government revenue.
The Productivity Commission has recommended the following framework for levies that try to create a public good for all entities in a sector, but which no individual business has an incentive to sufficiently invest in.
Source: Productivity Commission
The PC advised that the example case study of the Biosecurity Levy was based on incomplete policy information and was not a formal review, but said there were public goods that all business sectors could benefit from, it failed against the following warning signs.
The National Farmers Federation has leapt on the report, calling the levy a “a deeply flawed policy littered with a suite of issues” and raised concerns that the deadline of 1 July 2024 was “woefully inadequate” for a policy of such size and complexity.
“This report should be ringing the alarm bells in the Albanese Government’s offices. It’s not too late to correct course,” said NFF President David Jochinke in a statement.
“The report highlights significant issues with the design, including equitability, accountability, efficiency and a lack of clear links to outcomes valued by industry.
“In particular, policies that may have an impact on the levy system is something we take incredibly seriously. You botch this and confidence in the whole system goes down.”
Looking at the levy system across the country, the PC was scathing, finding industry levies have grown from 26 to 248 since 1980.
The PC suggested levies were being used as a politically expedient way of raising additional revenue for an individual portfolio minister or department, with “little regard for the impact they may have on the tax system as a whole.”
“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 PC Deputy Chair Dr Alex Robson.
“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.”
The PC did find that, on balance the agricultural levy system was working. The report referenced the four most recent reviews (between 2011 and 2016) and concluded that; “broadly… agricultural levy system was supported by industry representatives and government and thought to be beneficial to the industry and the community.”
It did highlight that the reviews did not explicitly estimate the net benefits of the agricultural levy system, however. It also called out the limited amount of reviews conducted into individual levies.
Source: Productivity Commission estimate
It found that the proportion of levy to gross volume was mostly in line, or better than other sectors.
It did find the collection cost of levies a key issue with the narrower the segment the more costly the process.
The PC estimated that the average collection cost of the agriculture system is about $0.92 per $100 collected, ranging from $0.80 (Cotton Levy) to $7.42 (Buffalo Slaughter Levy) per $100 collected (figure 2.2). By comparison the collection cost via the Australian Tax Office was just $0.57 per $100 collected.
Finally, in terms of the agriculture sector, the PC looked into evidence that research and development (R&D) budgets were demonstrating a return on investment and highlighted a 20111 study conducted by the Australian Bureau of Agricultural and Resource Economics Society (ABARES) that estimated that R&D conducted in Australia and overseas was responsible for almost two thirds of average annual productivity growth in Australia’s broadacre agriculture sector.
ABARES also found that every dollar invested in public R&D generates about $12 of benefit within 10 years. The PC referenced a 2023 ABARES report that suggested that every dollar invested in R&D results in a $7.82 increase in gross value added for the agriculture sector over 10 years.