Remote area tax concessions and payments

• Fact sheet 1: Zone Tax Offset (PDF - 431 Kb)

The zone tax offset (ZTO) is an income tax offset available to residents of specified parts of Australia (referred to as the ‘zones’ — see figure). It is designed to compensate residents for harsh climatic conditions, isolation, and a higher cost of living in the zones. The precursor to the ZTO was put in place in 1945.

In 2016-17 about 480 000 taxpayers claimed the ZTO, with claims worth $153 million. Many claimants earn above-median incomes.

Payment rates

There are three rates available, with people in more remote areas eligible for a larger offset.

• Special areas: $1173 offset, plus 50 per cent of applicable dependant rebates.
• Ordinary Zone A: $338 offset, plus 50 per cent of applicable dependant rebates.
• Ordinary Zone B: $57 offset, plus 20 per cent of applicable dependant rebates.

ZTO rates have not increased since 1993-94, and the value of the offset to claimants has fallen significantly in real terms. Today, the ZTO represents less than 1 per cent of after-tax income for more than 80 per cent of claimants.

The zones are outdated

The zones are outdated. Nearly half of claimants live in Townsville, Cairns, Darwin, or Mackay, which are now well-developed and connected cities. Their residents can no longer be considered isolated.

The ZTO lacks a contemporary rationale

Arguments in favour of the ZTO generally fall in one of two categories.

One argument is that it is necessary to compensate residents for the disadvantages of life in remote areas. However, Australians face a range of advantages and disadvantages wherever they live, and will typically locate themselves to the area they value most highly. And in many cases, higher remuneration for jobs in remote Australia compensates workers, at least to some extent, for the disadvantages of remote living.

The second argument is that the ZTO should support regional economic development, including by encouraging people to relocate to particular areas. A tax offset is not well suited for encouraging people to move to particular areas, because the employment opportunities, liveability and amenities available in particular places tend to play a more important part in where people decide to live and work. Further, attempts by governments to create an artificial advantage for a remote community, or to attract people to live in high-cost areas through tax concessions, are unlikely to be effective and typically result in net losses to the broader Australian community.

The Commission does not consider that either argument justifies maintaining the offset.

What is the Commission proposing?

As it stands, the ZTO is ineffective and poorly targeted, and the Commission does not consider that there is a compelling, contemporary justification for it to continue.

The ZTO should be abolished. In most cases, this is likely to have a small or modest impact. For the majority of recipients, including residents of Cairns and Townsville, the average impact will be around $2.50 per week.

If the Australian Government decides to retain the ZTO, it should be reconditioned. The ZTO should only be available to residents of very remote areas (as defined by the ABS) and provided as a flat offset at the current special area rate ($1173).

• Fact sheet 2: Remote Area Allowance (PDF - 556 Kb)

Introduced in 1984 as a companion payment to the zone tax offset (ZTO), the remote area allowance (RAA) is a supplementary payment for income support recipients in eligible areas. This study is the first broad-based review of the RAA since its introduction.

The Australian Government spends $44 million on the RAA each year, reaching over 113 000 people. Fortnightly payments are $18.20 for a single recipient, $15.60 for each person in a couple and $7.30 for each dependent child. The average RAA payment per recipient is $387 a year.

RAA areas include special areas and ordinary Zone A (but not ordinary Zone B), as defined in taxation legislation for the purpose of the ZTO (map below).

Some notable characteristics of remote area allowance recipients

• Most RAA recipients reside in very remote and remote areas of Australia (as defined by the Australian Bureau of Statistics remoteness classification).
• The majority are located in the Northern Territory, with one in five Northern Territorians over the age of 15 years in receipt of the payment.
• Half are located within areas of the highest socio-economic disadvantage.
• Two thirds of recipients are Indigenous Australians.
• The large majority are in receipt of either the age pension, the disability support pension, Newstart allowance or parenting payment.
• Just over half have been in receipt of an income support payment for over five years.

The RAA has a policy role...

The Commission considers that the RAA has a legitimate role — to compensate for some of the higher costs of living and reduced access to services affecting income support recipients in remote areas.

Unlike for most ZTO recipients, there is no market mechanism to compensate income support recipients in remote areas, who are predominantly outside the workforce, for the disadvantages of living in remote places. This, together with limits on the mobility of many RAA recipients (relative to ZTO beneficiaries), provides a policy basis for a supplementary income support payment like the RAA.

... but is in need of a refresh

RAA areas are outdated and payment rates have not increased in 20 years.

To ensure that the RAA is fit-for-purpose in contemporary Australia, the Commission is recommending that RAA areas be aligned with very remote areas, as classified by the Australian Bureau of Statistics (map below). Relative to people in remote areas, people in very remote areas face higher living costs, less ready access to services, and greater barriers to mobility. There are also significantly higher levels of socioeconomic disadvantage and lower levels of adaptive capacity in very remote areas.

Aligning RAA boundaries to very remote areas would improve the RAA’s targeting, decrease the number of recipients (over a year) by 46 000 and, if current rates of payment were maintained, decrease the cost of the RAA by $18 million a year.

The Commission is also recommending that the Australian Government should initiate a process to set new payment rates for the RAA.

• Fact sheet 4: Measures to Support Regional and Remote Australia (PDF - 370 Kb)

Collectively, Australian, State and Territory governments direct billions of dollars to measures intended to assist individuals, businesses and communities in, and facilitate the development of, regional and remote Australia. The remote area tax concessions and payments are a very small share of this.

Government measures supporting regional and remote Australia

State and Territory governments, with support from local governments, have primary responsibility for service delivery within their jurisdictions. The measures include:

• remote area (district) allowances to attract police, teachers and other professionals
• support for patients needing to travel long distances to access specialist medical services
• distance education.

In addition, initiatives extend to the funding of regional projects. One example is the Western Australian Government’s Royalties for Regions program — which directed over $6.9 billion of State mining and onshore petroleum royalties to over 3700 infrastructure and community projects.

The Australian Government also supports regional and remote communities, including through payments to doctors to work in remote areas, subsidies for the supply of some utility services like telecommunications, assistance for industries prominent in regional and remote areas, specific funds such as the Building Better Regions Fund and significant infrastructure investments (including regional airports). This is on top of Australia’s system of horizontal fiscal equalisation, which aims to give each jurisdiction the fiscal capacity to provide a similar level of public services, and considers the higher per capita expenditure on service delivery in remote areas.

Natural disaster relief

All governments have extensive involvement in the relief, recovery and reconstruction of communities devastated by natural disasters, such as the recent bushfires. The crux of this support is that it is targeted to the communities affected, wherever they are located.

Remote area tax concessions and payments are poorly suited for this purpose as they are small ongoing payments to people in a fixed geographical area — many parts of which will not be affected by a natural disaster — while other communities that are affected by natural disasters miss out. For example, most communities affected by the recent bushfires, such as those on the south coast of NSW, are in ‘regional’ areas, not ‘remote’ areas of Australia.