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That's the Australian approach, where the federal government collects all income taxes (courtesy of some interesting legal maneuvering in WW2) as well as sales

That's the Australian approach, where the federal government collects all income taxes (courtesy of some interesting legal maneuvering in WW2) as well as sales taxes, leaving the states only able to collect payroll taxes, land taxes, mining royalties and a few other limited types of revenue. All sales tax revenue is 100% distributed back to the states - but it's done under a principle of "horizontal fiscal equalisation" (https://www.cgc.gov.au/index.php?option=com_content&view=article&id=258&Itemid=536 https://www.cgc.gov.au/index.php?option=com_content&view=art...) which means that richer states subsidise poorer states. Income tax is used to cover federal expenditure but also pays for a lot of federal grant money which is paid to the states. In general, the Australian approach to federalism is a lot more federal-heavy than in the US, and some part of that is driven by how the feds have completely taken over most forms of taxation and thus control all the purse strings.

BigJono 8y ago
Shouldn't the fiscal equalisation strategy result in better infrastructure and more incentives for businesses and people to move to smaller states? It seems like the market is focused entirely on Sydney and Melbourne, and it's orders of magnitude more difficult to find a good job elsewhere.
- ajdlinux 8y ago
  I imagine the answer to that is that it does result in better infrastructure and more incentives to move to smaller states, and if we didn't base our tax policy around HFE then it would be even worse than it is now.
consp 8y ago
While not a federation or federally instituted, this is exactly how it works in the Netherlands. The central government collects income tax, VAT and social security taxes, etc. The local government (e.g. municipalities mostly, provinces sometimes) get grants and spend it. Example: Healthcare is locally instituted by the municipalities/cities ("gemeenten") while the tax (social securities) are collected nation wide together with income tax. Please note that only the executive part is local. The municipalities can also levy taxes but usually only on common goods like sewage, water and on home ownership or equivalent for people who rent. The provinces do the same but it is far less than the central government does.
- UncleEntity 8y ago
  Why stop there, really? The EU should collect taxes for all the member states and then give it back to them in some equitable fashion. It would certainly stop all the bickering over tax havens and countries not collecting their "fair share".

BigJono 8y ago

Shouldn't the fiscal equalisation strategy result in better infrastructure and more incentives for businesses and people to move to smaller states? It seems like the market is focused entirely on Sydney and Melbourne, and it's orders of magnitude more difficult to find a good job elsewhere.

ajdlinux 8y ago
I imagine the answer to that is that it does result in better infrastructure and more incentives to move to smaller states, and if we didn't base our tax policy around HFE then it would be even worse than it is now.

consp 8y ago

While not a federation or federally instituted, this is exactly how it works in the Netherlands. The central government collects income tax, VAT and social security taxes, etc. The local government (e.g. municipalities mostly, provinces sometimes) get grants and spend it. Example: Healthcare is locally instituted by the municipalities/cities ("gemeenten") while the tax (social securities) are collected nation wide together with income tax. Please note that only the executive part is local. The municipalities can also levy taxes but usually only on common goods like sewage, water and on home ownership or equivalent for people who rent. The provinces do the same but it is far less than the central government does.

UncleEntity 8y ago
Why stop there, really? The EU should collect taxes for all the member states and then give it back to them in some equitable fashion. It would certainly stop all the bickering over tax havens and countries not collecting their "fair share".