Discussion Paper 

Revenue Measure Options for the Norfolk Island 
Government 

This Discussion Paper is prepared by the Norfolk Island Government consistent with the 
Specified Improvement required under Clause 15 (a) of the Funding Agreement signed on 
the 22nd of September 2011. 

Discussion Paper
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Discussion Paper 

Revenue Measure Options for the Norfolk Island Government  

Background 
This paper canvasses options for the Norfolk Island Government to consider for raising revenue. 
The Funding agreement requirement is that these options need to be more closely aligned to those 
revenue raising measures used in other Australian jurisdictions. The paper considers the findings of
the Public Service Review1,Update on the Financial Capacity of Norfolk Island2and the Norfolk Island
Development Report3(EDR)along with other referenced material relevant to the issue. 

The Roadmap for reform agreed between the Chief Minister and Minister Crean has the goal of 
providing a mutually acceptable and appropriate form of modified self-government that is
consistent with contemporary models for state, territory and local government –modified to take 
account of the unique circumstances of Norfolk Island. 

The Road map requires consultation with the Norfolk Island community on the preferred model of 
self-government4. The Norfolk Island Government released publicly the preferred model of self-
government on the 7th of July 20115. The preferred model has the following features:- 

·	Norfolk Island Government to transfer to the Commonwealth any federal functions in
accordance with the process outlined in the Road Map. 
·	Norfolk Island Government to retain State and Local Government type functions. 
·	Funding for Norfolk Island Government’s delivery of public infrastructure and State and Local 
Government type functions to be shared with the Commonwealth, similar to other self-
governing jurisdictions within the federal taxation system. 
·	Retention of the existing Territory Institutions 

Therefore any discussion on revenue raising options for the Norfolk Island Government cannot be 
made in isolation –there is a requirement to define the expenditure responsibilities of the Territory

1Australian Continuous Improvement Group; Norfolk Island Public Service Review –Prepared for the Department
of Regional Australia Regional Development and Local Government; 25 October 2011.
2Commonwealth Grants Commission; Update on the Financial Capacity of Norfolk Island 2011 –Staff findings; 2nd
December 2011.
3ACIL Tasman; Norfolk Island Development Report –Reform of the Norfolk Island Economy; Prepared for the 
Department of Regional Australia, Regional Development and Local Government; March 2012
4Roadmap Reform 1 (d) for action in 2011/12 
5Press Release of 7th July 2011 

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Government into the future. With these defined the adequacy of the combination of potential 
revenue measures can be assessed in respect to their ability to provide a sustainable fiscal footing
for the territory into the future. 

The EDR highlights the necessity for some form of regular fiscal equalisation payments to occur 
between the Commonwealth and Norfolk Island governments. This may be through full integration
of the island into the Australian Tax system or alternatively reform of the Norfolk Island Tax 
system, access to Commonwealth infrastructure grant programs, health funding and ad hoc funding
provided by the Commonwealth6. The consultant however believes the proposals for taxation as
outlined in the Roadmap is the preferable approach7. 

This paper discusses the options for funding the preferred model through the three tiers of 
Government revenues available to the Norfolk Island Government (Federal revenues; State 
Revenues and Local Government revenues). The paper has also discussed those revenue areas
outlined in the CGC report as being potentially significant for the Norfolk Island Government to
consider (Table 1). It has an expanded discussion in relation to those revenue areas that are
considered for reform in the EDR. 

Whilst the quantum of funds is important for the island to consider, under each of the potential 
revenue measures, so is the security and predictability of them. For self-government to be 
sustainable under the preferred governance model it is essential for the Norfolk Island Territory
Government to have reasonable surety over future revenues. This paper discusses the significant
measures and the security of the revenue flows. 

Table 1 Norfolk Island Revenue Sources and assessed revenue capacity8 ($,000) 

Revenue Source 
Federal Revenue
Measures 
Income Tax 

NI Actual Revenues 

Comparable Revenue 

Comment 

  Not currently applied 
discussed as an option 

GST 

Customs Duty 

Healthcare/Medivac
Levy 

7,298  Seen as a Federal tax and 
deductable from 
transfers 
401  Not taken into account in 
the CGC update 
917  Not taken into account in 
the CGC update 

Discussed 

Discussed 

Discussed 

Fuel Levy 
State Type taxes 
Payroll tax 

6EDR…Op.cit.p. viii 

8 

0 

  Not significant 

09  This revenue source is

7 Pers. Comm. Meeting with the Norfolk Island Government April 23rd 2012 
8 Source CGC Update..Op.cit. p. 116 
9 The CGC assessment was $26K based on the Administration retaining the operation of Norfolk Air without
this the assessed revenue is nil. 

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Revenue Source 

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NI Actual Revenues 	Comparable Revenue 

Comment 
not considered 

Land tax 

Stamp duty on 
conveyances 
Financial transaction 
taxes and stamp duties
on marketable securities 
Gambling taxes 

Insurance tax 
Motor taxes and charges 
Other tax revenue 

Mining royalty revenue 
Contributions by trading
enterprises 

Interest revenue 

Fees and fines 

Local Government
Revenue 
Municipal Rates 
User charges 
Interest and other income 
‘State’ Grant and 
subsidies 

170 

461 

11 

1,424 

0 
503 
386 

0 
476 

91 

69 

0 
773 
2,401 
0 

942  This revenue source is
significant but over-
estimated, Discussed 
640  Discussed 

0  Not significant and not
considered 

468  Significant and above
comparisons, not
discussed 
545  Discussed 
774  Discussed 
89  Significant and above
comparisons, not
discussed 
0  Not Discussed 
308  Exceeds the comparative
assessment and not
discussed. 
283  Not significant and not
discussed. 
77  Not significant and not
discussed 

1,393  Discussed 
1,040  Discussed 
821  Discussed 
132  Discussed 

The CGC report acknowledges that it does not take into account the effect of introducing new taxes 
or increasing the rate of existing taxes on the Norfolk Island economy. This is however addressed in 
the EDR and it proposes that the resolution of the long term tax arrangements for the island should
occur in the third phase of the economic development strategy. It recommends that regardless of
any evidence of growth in the economy, company and income tax should not be considered for 
extension within the next five years10. 

This paper identifies the issues that the Norfolk Island Government considers significant in 
considering the revenue measures further. 

10EDR…Op cit  p 96 

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Revenue Measures 
Federal Revenue Raising Measures 
Income Tax 

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The introduction of a local income tax has been discussed in the report Tax Options for Norfolk
Island11 and identifies that consistent with schedule 2 of the Norfolk Island Act that it could be
possible for the Norfolk Island Government to introduce its own income tax -however a whole of 
government approach would be required to do this. Since no other State or Territory imposes its
own income tax, Norfolk Island moving to do so would pose potential problems for the Australian 
Government. 

An income tax has the advantage of broadening the local tax base away from indirect taxes.
However to be effective locally it was recommended that:- 

·	The tax should be at a progressive rate structure with a tax-free threshold to protect low income
earners and higher rates cutting in to those exceeding average incomes. 
·	To simplify the tax it could be made to apply at low rates and denying deductions, exemptions 
and concessions 

Therefore the report was not recommending the introduction of the Australian Income tax system –
collected by the Norfolk Island Government, but rather a unique direct income taxation system
designed for the island. The specific revenue impact derived from the introduction of a local income 
tax would be dependent upon the design of the tax and the rates that it was applied at. Therefore no
estimate of the potential revenue is possible. A two year lead time was estimated as being required
to have a local income tax system up and running from the time a decision (and presumably a
design) was made. 

The option of the introduction of a local income tax system was not part of the taxation reform
options recommended in the EDR12

Issues 
·	The adoption of the Australian Income taxation system, but implemented and collected by the
Norfolk Island Government would require some form of contracting of compliance services as 
the local cost of setting up a compliance system would be prohibitive. This cost would reduce the
overall revenue yield. 
·	Introduction of local income tax would mean that the Norfolk Island Government would be
responsible for designing and implementing a unique direct taxation arrangement for the island.
This would be a unique solution that will require a legislative and administrative framework.
The framework will need to be developed and operated on the island by the Administration. 
·	The provision of personal income information to Administration taxation officials will not be
supported by the community. 

11Discussion Paper; Taxation Options for Norfolk Island; 2003?; The Treasury; Australian Government 
12Ibid. p. 105 

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·	Since this tax is also in the sphere of authority normally reserved for the Commonwealth 
Government there are potentially problems with the interaction of the local income tax régime
and that of the Australian Government. 
Norfolk Island Government position 
Either the establishment of a unique income tax system for the island or the adoption of the 
Australian Income Tax System, implemented and collected by the NIG would be both complex and 
require considerable local costs associated with setting up a legislative and compliance mechanism
to collect and enforce the tax. It is thought that the costs associated with this would significantly
reduce the net revenue yield to the Territory. The often expressed local concern associated with 
divulging personal information relating to income, to local officials would only be overcome by
contracting these services off-shore adding to the costs and potential complexity of running the tax 
system. 

For these reasons the option of the NIG either adopting the Australian Income Taxation system and
collecting and operating that system locally is not attractive. Similarly the option of designing a
unique income taxation system for the island would again involve significant local costs and
resources as well as the need to reveal personal financial information. For these reasons the NIG
preferred course of action is for the Australian Income Taxation system to be extended to the island,  
and revenue collection be administered by the Australian Taxation Office. 

GST 
Norfolk Island already has its own GST and under the Roadmap for reform has the ability to retain 
its existing GST system, request to adopt the Australian GST system or have no GST applying to the
island. GST is seen as a Federal Government tax that is distributed to the States to fund state-type 
services  Norfolk Island’s GST is collected at a higher rate than that applying in Australia (12% 
compared to 10% in Australia); and is applied on all goods and most services (whereas in Australia 
basic foods such as bread, milk and fresh produce are exempt).  This system does not allow for 
input credits associated with capital expenditure (the Australian system does). In the current
financial year it is expected to yield $7.298 mil13 and is the single largest source of tax revenue
currently available to the Norfolk Island Government to provide essential community services. 

Whilst Norfolk Island is not in the Australian GST system the difficulty that Norfolk Island
residents (and businesses) have to convince Australian merchants to not charge GST on goods
exported to the island means that often Australian GST is paid on goods coming to the island. The
mechanism of then claiming back GST through the Australian Customs service is difficult and is
mostly not pursued. Therefore some benefit to Norfolk Island consumers from being outside the 
system is lost as local consumers end up having to pay the Australian GST on the goods they 
purchase. If this occurs by the Norfolk Island retailer the local consumer is effectively being charged 
Australian GST and Norfolk Island GST (double taxation)–further driving up local costs. 

13 Norfolk Island Budget Papers, Mid-Year Review 2011/12,  figures after costs.

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Should the Norfolk Island Government request to adopt the Australian GST system it would be 
consistent with the other self-governing Territories of the Commonwealth (ACT; Northern 
Territory) and similarly the entry of Norfolk Island into the Australian GST regime would allow it
to be considered under the process of examining relativities according to the Australian Framework
for Federal Financial Relations14. Under this arrangement the Territories federal funding would be 
provided under the system of General revenue funds (Funds that the State or Territory may use as
it sees fit and representing about 45% of the transfer amounts) and Specific purpose payments (SPP) 
and National partnership payments (NPP).  SPP are broad banded to five National SPP one of each 
covering:- 

·	Healthcare 
·	Schools 
·	Skills and Workforce Development 
·	Disability Services 
·	Affordable Housing 

NPP were introduced to fund specific projects to facilitate States and Territories on nationally
significant reforms and to reward States and Territories for the delivery of reforms. Collectively
SPP’s and NPP’s represent approximately 55% of federal assistance to the States and Territories. 

Importantly for all the States and Territories the respective relativities for the distribution of GST 
revenues (which takes into account the horizontal fiscal imbalance i.e. the differences in States and
Territories revenue raising capacity) is undertaken each year by the Commonwealth Grants 
Commission (CGC).  The CGC takes into account the average of the annual relativities for the three 
preceding assessment years   Each State’s or Territory’s share of the GST in the following year is
derived by combining its per capita relativity with its estimated population as at the end of the year.
This approach means that since it is an averaging process there is a reasonably high degree of 
predictability by the State and Territory Governments associated with the federal revenue they will
receive. This would be particularly attractive for Norfolk Island and would allow longer term
planning within a reasonably defined resource envelope. 

In the latest Commonwealth Grants Commission findings 15 the report indicates that should the 
Norfolk Island Government retain its existing GST system this would be seen as equivalent to
Australian Government assistance to comparable communities funded through the Australian GST.
This has the effect of reducing the Commission’s finding of the level of assistance required by the 
Norfolk Island Government down from $13.069 mil to $5.394 mil16. 

The CGC has calculated the above at  approximately $13 069 mil per annum as the “Financing Gap”
between comparable State revenues and expenses and the gap between comparable local revenue 

14Report on GST Revenue Sharing Relativities -2011 Update, Commonwealth Grants Commission; Australian 
Government. P.35 
15Update of the Financial Capacity of Norfolk island 2011 –Staff findings. 2 December 2011; Commonwealth Grants
Commission; Australian Government. p.3 
16Ibid. Table 2;

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and expenses plus provision for loan repayments over ten years. Using the approach the CGC used 
in the 2011 Update on relativities for Australian GST distribution the Tasmanian per capita grant
was $3 500 and the Northern Territory’s $11 700 per capita  Whilst Norfolk does not have the 
logistical problems with service delivery that the NT has,  it would have greater dis-economies of 
scale than Tasmania.  If an averaged value between the two was used ($7,600 per capita) the grant
to the island would be approximately $13.7 mil per year –consistent but slightly higher than that
found by the CGC. 

Therefore both estimates suggest that Norfolk should receive somewhere in the vicinity of $13 -$14
mil per year in grants for the delivery of State and local government services on the island. It is 
important to note that this calculated level of financial assistance would not in itself make the island
fiscally sustainable17 as it makes no allowance for investment in new assets or investment in the 
backlog of funds necessary for replacing old wearing out existing infrastructure. 

The distribution of GST revenues to the island is as important as the quantum of funds it can expect 
to receive. The most equitable method of it receiving funds to provide State and local government
services would be through the same process as the other self-governing territories (ACT and NT). 
For this to happen it would require a relatively minor inclusion of the Territory into the 
Intergovernmental Agreement on Federal Financial Relations (IGA).

Issues 
·	The current Norfolk Island GST is at a higher rate and applies to more goods and services and
does not provide the input accreditation that the Australian system does. 
·	Being outside the existing Australian GST system often results in Norfolk Island residents being 
charged Australian GST on their purchases plus the considerable difficulty of reclaiming.
Therefore the benefit of not being subjected to Australian GST is reduced since most goods and
services originate from Australia. 
·	As a self-governing Territory Norfolk Island will need to be included in the IGA. 
·	It will then receive funds for the provision of State and Local Government services consistent 
with the rest of Australia. 
·	It will have a high degree of funding security allowing it to plan in the same way as other States 
and Territories do currently. 
·	It will need to improve its financial management and provide some form of Treasury function 
for the Government to work effectively with the Australian Government system. 
·	The existing Norfolk Island GST system is seen locally to be less equitable than the Australian 
system as it is imposed at a higher rate, taxes essential foods and does not allow input credits on
major capital investment. Modification of the local scheme to align it more closely with the 
Australian system will significantly increase the complexity (and therefore the compliance cost) 
of operating the scheme. 
Norfolk Island Government position 
The Norfolk Island Government prefers to opt into the Australian GST system and for this to be 
collected through the Australian Taxation Office. For Norfolk Island to operate as a sustainable self-
governing external territory consistent with the framework of the other self-governing Australian 

17Ibid. p.4 

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Territories it should be included in the IGA and receive annual GST disbursements through the 
existing CGC framework for fiscal equalisation. 

Customs Duty 
Customs duty is a further tax that is normally reserved for the Commonwealth Government to
apply and collect. The Norfolk Island Government has also been granted this authority. Prior to
199418 the level of duty applied by Australia and New Zealand to imported goods was high.
Norfolk Island with its own lower duty levels therefore could offer imported products to tourists at 
lower costs than they could purchase in their own countries. It was on this basis that most of the 
island’s retail trade was established  With both Australia and New Zealand reducing duties and
tariffs according to General Agreement on Tariffs and Trade (GATT) the comparative price 
advantage that Norfolk Island retailers enjoyed has largely disappeared. It is unlikely that either 
country is likely to return to a protective tariff regime in the future. 

In the current financial year the expected gross revenue from customs duties has been reduced from
$1.022mil to $0.800. As a revenue source it has been showing a declining return since the 
introduction of Norfolk Island GST. The cost of operating the customs service is $0.399 mil
providing the Norfolk Island Government with a net revenue yield of $0.401 mil. 

The EDR has quantified the cost of being an international destination to the island’s economy as
2,200 visitors per year which based on Tourism Spending Measures and the flow-on effect through 
the economy the loss to the island’s economy is between $4.5 and $6.4 mil per year19. The existence 
of a separate Norfolk Island customs regime on the island has been raised as a problem to allowing 
flights to the island to be serviced from Australian domestic terminals. 

Issues 
·	Maintenance of a local customs duty arrangement is a difficulty with respect to including
Norfolk as a domestic destination from Australia. Advice from the DRALGS is that there a
possible issue of Australian Border Protection Services being extended to the island if there is a
different customs regime operating locally. 
·	In some cases the local customs duty is higher than that applying to goods imported into
Australia since the levying of customs duties applies to imported goods which may have been
imported in part or as a whole to Australia  means the payment of a local customs duty by the 
Norfolk Island consumer is double taxation20. This has the effect of increasing local prices and is 
most likely in the non-tourist related product areas (household durables; tools and machinery). 
·	There is a chance that the distribution arrangements of a small number of local retailers could be
affected by the removal of a local customs duty regime. 

18General Agreement on Tariffs and Trade (GATT 1994) which placed new obligations to reduce tarrifs on its 
signatories. 
19. The EDR has estimated the loss in tourists to be 2,200 per year and based on 2004/5 Tourism Spending
measures this represents $3.6 mil in lost local spending per year. An economic cost of between $4.5 mil - $6.4 
mil each year. 
20This would apply to some goods where the Norfolk Island importer is not the direct overseas importer of 
the product and has no arrangement with the Australian importer for the goods to be re-exported to the
island duty-free. 

8

Norfolk Island Government position 

Discussion Paper
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The local economic loss from the island being accessed through an international terminal in respect 
to decreased tourism and the flow-on spending impacts is between $4.5 mil and $6.4 mil per year.
The Norfolk Island Government believes that this benefit outweighs the current net revenue stream 
it obtains from maintaining its own Customs regime. If the removal of a local Customs regime was
required to enable access to the island through domestic terminals the government would prefer to 
adopt Australian Customs and to have this collected and administered on the Island by the 
Australian Customs and Border Protection Service. In moving to this system it would suggest that
at least a two year transition period be provided to enable any local retailers affected by the change
to restructure according to any changed distribution arrangements. 

Healthcare/Medivac levy 
The Norfolk Island Healthcare/Medivac levy is a form of direct taxation normally reserved for the 
Federal government. This tax is used to fund the provision of healthcare services to the Norfolk
Island community. It is somewhat analogous to the Australian Medicare Levy differing in that it is
not progressive (i.e. everybody pays the same rate irrespective of income) and families are still
required to spend more than the threshold (currently $2,500 per year) before they obtain any direct
benefit. 

The Healthcare/Medivac levy is not part of the Revenue Fund budget however it is estimated21 that 
it provides $0.917 mil in revenue against total health expenditures of $2.893 mil22. On this basis the 
levy recovers 32% of healthcare expenses. The increasing cost of providing healthcare on the Island 
to the standard expected in the rest of Australia is prohibitive for the Norfolk Island Government.
In both the Public Sector Review report and in the Economic Development Report it has been 
recommended that the responsibility for funding Health services on the island be transferred to the
Australian Government. If this was undertaken funding of healthcare services in the long term
would then take place through the Medicare levy system. 

As an immediate action to promote community welfare the Economic Development Report
suggests that an extension of medical and associated services be made to the island, pending the
introduction of the taxation system23. 

Issues 
·	Because the Australian Medicare levy is progressive and paid through the Australian Income tax
system the provision of Medicare benefits has been linked to the introduction of Australian
income tax. Unless there is a mechanism to overcome this link the recommended introduction of 
the Australian Taxation system over a five year time-frame will mean that those disadvantaged
citizens in the Island’s community will be without medical cover for a considerable time. 
·	There are significant diseconomies associated with the small scale and isolation in providing
health services to the Island that are not taken up in a per capita approach to healthcare funding

21 Source CGC Update..Op.citp.55 
22Net of user charges 
23Source EDR Op. cit.  Table 25, p.97 

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as used in the CGC distribution estimates. It is unlikely that funding provided through the SPP
for Healthcare would be sufficient to cover the provision of healthcare costs on the Island. 
·	The local Healthcare system does not require co-contribution for medical costs once the 
threshold has been reached in a year therefore there is no “cost-gap” for families associated with
treatment above the annual threshold  Without the ability for local families to obtain “gap
insurance” under the Australian Health Insurance arrangements potentially there could be a gap
in providing full health cover. 
Norfolk Island Government position 
The Government sees the provision of healthcare on the island as a very high community priority
and believes that the extension of the Australian Medicare and PBS to the island should be fast-
tracked. The time period for the introduction of the Australian Taxation system represents an 
unacceptable period of vulnerability for the economically disadvantaged in the community. It
supports the actions proposed in the EDR to continue the collection of the existing healthcare levy 
and pass this revenue to the Commonwealth as a co-contribution, thereby allowing an extension of 
Medicare benefits to the community that pre-empts the Australian Taxation Scheme. It agrees with 
the recommendations in both the Public Service Review and the Economic Development study that
Healthcare services should be funded by the Commonwealth. 

Fuel Levy 
The Norfolk Island fuel levy is a further Federal type tax providing $8,000 per year in budgeted
revenue. At this level of return, as a revenue source, it is of insignificant value. 

State revenue measures 
Land Taxes 
Land taxes differ from Municipal rates in that they are normally applied by States and Territory
governments. In the States and Territories, there is considerable variation in the arrangements for 
land tax. The Northern Territory does not levy it at all. In other States, principal residential property
and productive rural land are generally exempt, but hobby farms are not.  Leasehold land is
variously treated. Tax scales and tax free thresholds vary between States24. 

Since it is part of the tax mix that State and Territory governments may apply to raise revenues it is 
included in CGC estimates of State revenue raising ability. The CGC uses the following approach to 
estimate the revenue on 

·	the value of total commercial and industrial land, with a value distribution adjustment which 
reflects the progressivity of the tax structure 
·	the value of non-principal residential (NPR) land, estimated as the total value of residential land
adjusted by the proportion of residential properties rented privately. 
·	The commission assumes that, based on average State practice, States have no capacity to raise
land tax from rural land or owner-occupied residential properties. 

In the recent Update the CGC has revisited the estimate made by the Commission in 2006 of $3.05
mil being available to the Norfolk Island Government from Land tax down to $0.942 in the 2011 

24CGCUpdate..Op.cit. p.99 

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report. The major differences in the estimate results from better land valuation data and a revised
estimate of the value of commercial land on the island from $2.0 mil per ha. being reduced to $1.0
mil per ha. The tax stream was then assessed on the basis of average state tax rates according to 
land value. The taxing rate ranged from 0.360% to 1.543% per annum. Based on this approach, land
tax revenue raising capacity was estimated at $942 000, comprising $910 000 from land zoned on 
Norfolk25 for mixed use/business/industrial land and $32 000 from NPR land. 

We have sub sequentially looked at how the CGC estimated the amount of mixed
use/business/Industrial land and the valuations for each. It appears that the estimate used for this
land to be valued at $1.0 mil per ha exceeds the actual area of land with this value on the island.
Our analysis indicates that the only zone that was valued at an average value of 1 mil/ha was that
zoned “business” and in total, the area of the island zoned for this use is 13.3ha –considerably less
than that estimated by the CGC. The other three zones had average values of $442.5K; $206K and
$308K per ha respectively. It was therefore not possible to verify the estimate of land that could
attract the value provided in the CGC report and this issue has been sent back to the CGC to
consider. This difference would significantly reduce the assessed revenue stream from land tax on 
commercial land down below the $0.910 mil estimate possibly by as much as a half to two thirds. 

Since this is one of the major new revenue measures which the Commonwealth will be expect the 
Norfolk Island Government to consider it is important that further detailed assessment of land
values according to planning and tenure be undertaken. This would need to then be considered in 
relation to the wider policy associated with the Islands population, particularly if planning
measures are being proposed to manage the Island’s resident population  

Issues 
·	The major source of land tax revenue is from land zoned for “business” purposes and this is 
significantly over estimated in the CGC report. 
·	Since this tax is not applicable to rural land and owner occupied residential properties the effect
on large tracts of rural land and islanders living on large parcels of land should be negligible. 
·	The tax will apply to land and properties which are rented and commercial property held for
speculative purposes. The tax cost could be passed on in higher rents and there will be an 
incentive to develop rather than hold commercially zoned land. 
Norfolk Island Government position 
The Norfolk Island Government is prepared to consider the introduction of a land tax. Before it can 
consider the option further it will require a more detailed examination of the land values and land
tenure. It does not believe that the quantum of revenue from this source will be as large as that
estimated by the CGC.  Since the introduction of a land tax will create an incentive for suitably
zoned land to be developed – particularly for rental accommodation it believes the introduction of a
land tax should be considered in relation to overall planning measures for the permanent and
transient population of the island. 

25Based on the Norfolk Island Plan

11

Stamp duty on conveyances 

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The existing stamp duty on conveyance is a flat rate of 4%. This differs in the arrangements used in 
the other States and Territories in that:- 

·	It is not progressive and does not vary with the value of the land 
·	There is a flat fee of $825 registration charged when the conveyance is without a monetary 
consideration26 whereas in most State and Territories exemptions are given for first home buyers. 

Norfolk is currently obtaining less per capita ($254) than the average of all states ($541), however it
is not very significantly different from that obtained from Tasmania ($323) which has the same 
maximum rate (4%) as the flat rate that applies on Norfolk. 

The CGC report suggests that Norfolk’s revenue raising capacity from this revenue stream is $640K
per year, significantly greater than the current year revised estimate of $450K. This must be
considered in relation to the average respective tax rates by value considerations made by the 
CGC27 under which the average value of land transferred on the Island which would attract the 
average tax rate (i.e. 4%) which would be $0.7-$0.8 mil. This is far higher than the actual average of 
all property transfers since July 2006 which was $0.25 mil28

Issues 
·	Norfolk provides the exemption on conveyance stamp duty for land passed down to children 
and could be analogous to the exemptions provided by States and Territories for first home
buyers. 
·	Whilst the Norfolk Island system is not based on a progressive rate the current level of tax 
collection should be regarded as the maximum that can be obtained from the current level of 
land transfers and the local land values. 
Norfolk Island Government position 
The Norfolk Island Government believes that it is making significant revenue raising efforts
associated with the collection of stamp duties. The existing level of revenue is a reflection of the
current economic climate on the island and whilst it will continue to monitor this revenue 
stream it does not intend to significantly change it in the near future. 

Insurance Tax 
Insurance tax is not a current Norfolk Island tax. However it is a tax levied by the States and
Territories on insurance premiums in Australia and as such is considered a revenue raising measure 
available to the Island. In Australia it is levied at different rates for Compulsory Third Party (CTP) 
and general property insurances. In 2009-10 the CGC reported that the all-state average tax on these 
premiums was 11.4%. The CGC report has estimated that the CTP premium for the island is about

26What is referred to in the report as “natural love and affection” and gifted transfers 
27CGC Update..Op.cit. Table C-7. p.104 
28The actual average price of all transfers since July 1 2006 to 20 April 2011 was $253,154. This excluded those
which were done for “natural love or affection” inclusion of which would have lowered the average price 
further. 

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$0.78 mil and the household premium insurance of approximately $4.0 mil29,this giving a total
taxable premium base of $4.78 mil and a potential revenue stream of $0.545 mil per annum. 

Issues 
·	As acknowledged in the report the value of $4.0 mil on household premiums appears high and
before consideration needs further local verification. 
·	A tax on insurance premiums will increase local insurance costs. Whilst the CGC analysis
identifies the tax is not present it does not provide any analysis of the comparative cost of 
insurance on the island versus the mainland. 
Norfolk Island Government position 
The Government is prepared to investigate the option of introducing a tax on insurance further.
It is however concerned that the local costs of insurance are already higher, due to local factors,
than the comparative level of premiums charged in Australia. It will need to undertake some 
comparative analysis before considering this measure further. 

Motor Taxes 
On a per capita basis Norfolk was assessed as already applying motor vehicle taxes at close to the 
all-state average ($277 per capita compared to $318 per capita). In this comparison30 it was charging
more per capita than Victoria; South Australia; Tasmania and the NT. The major difference in the 
taxing regime on Motor vehicles is the local flat fee for vehicle transfers versus the Australian 
approach for a fee based on the vehicle value. The effective rate of the all-state stamp duty being
3.2%. 

Issues 
·	Norfolk is already levying motor taxes at a comparable rate to that applied in Australia 
·	The flat-fee that applies to vehicle transfers even if changed would be unlikely to significantly
increase revenues as vehicles on the island are of lower value than the mainland and are 
transferred less frequently between owners. 
·	The levy rate is tied to the RPI and therefore is automatically indexed to inflation. 
Norfolk Island Government position 
The Government believes that it is already accessing the level of possible revenue from this source
and whilst it will keep the area under review does not intend to make significant changes over the 
near term. 

Local Government Revenue Measures 
Municipal Rates 
Municipal rates are charged by local governments in Australia on most ratable land based on 
valuation31.  

29The CGC estimate based on discussions with the two insurance agents. 
30CGC Update..Op.cit. Table C-12; p. 109 
31 The valuation measure differs between states but the most frequent value is based on unimproved capital 
value. 

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Discussion Paper
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The EDR has referred to this as a universal land tax and the core action to improve the revenue 
raising capacity of the Norfolk Island Government32. It has proposed that this be introduced in 
phase two of the economic development strategy (i.e. within 2-8 years) and that consideration be 
given to extending the current absentee landholders levy to cover all land at a recurrent rate of 
between one and two percent. No estimate has been provided on the revenue stream on this and it 
will require valuation of all the remaining land on the island33. 

In the 2006 CGC report they compared the Norfolk Island situation with three local Governments;
King Island, Shoalhaven City Council (NSW) and that of Byron Shire Council(NSW). In the 2011 
update the report has assumed that the land valuation on Norfolk would be comparable to that of
King Island.  

On this basis the CGC has assessed that the Norfolk Island Government would be able to collect
$1.4 mil from the levying of Municipal rates. This revenue target would require rates to be levied at 
$789 per capita34 which is higher than the all-state per capita level ($526) and at this level would
have the highest State or Territory municipal rates in Australia35.  

Unfortunately the report does not give any indication that the actual land valuation was compared 
for King Island and if it was whether the same over-estimate of the quantity of commercial land on 
Norfolk36 has also been used in making the comparison. Of further relevance in making the 
comparison is the quality of local Government services that are being delivered to the King Island
community and whether those are applicable to the Norfolk Island context. 

Issues 
·	Since this is the single largest new tax to be considered on the island the quality of the revenue
estimates provided in the CGC update report require considerable further examination 
particularly in comparing Norfolk with an individual local government community such as King
Island instead of against the all-state average. Similarly if the approach proposed in the EDR is to
be followed valuation of the remaining land on the island will be required. 
·	There is a strong sense that Municipal rates pay for local infrastructure (kerbing; street lighting;
garbage collection) and the level of these services on the island is below that in the comparable
communities. 
·	Norfolk Island, even after introducing municipal rates, would not be in a financial position to
bring the local infrastructure up to a comparable standard without significant immediate
investment and on-going access to the range of financing mechanisms (including debt) available
to local government in Australia. 

32EDR Op.cit.p.105 
33Currently only absentee land is valued, it is estimated that it will cost $100K to obtain valuation on the
island’s remaining land  
34The same rate as levied by King Island 
35CGC Update..Op.citTable E-1; p.152 
36As identified in the discussion on Land tax 

14

Norfolk Island Government position 

Discussion Paper
···

The Norfolk Island Government believes that whilst the estimate provided by the GCG of
revenue yield is distorted by the previous assumptions made with respect to land valuation it
will examine the introduction of a Municipal rating system. Likewise in respect of the EDR 
approach it will undertake to have the remaining land on the island valued. It believes that a co-
commitment will need to be provided by the Commonwealth to allow immediate investment in 
sub-standard local government infrastructure on the island. This will initially need to be 
provided by specific-purpose grants37 and thereafter by access to the normal local-government
financing mechanisms available to local governments elsewhere in Australia. 

User Charges 
User charges reflect the fees that Local government in Australia charge for building application fees,
development fees, subdivision fees, water, sewerage, septic and waste levies, license fees and fines,
hall hire charges, landing charges and dog registration fees. The CGC update assessed that Norfolk
was already collecting the all-state per capita average from this revenue source ($425)38. 

However similar to the approach taken with respect to Municipal rates the CGC believes the 
comparable revenue raising capacity for this item is that applying on a per capita basis for King
Island. The King Island community pays an equivalent of $507 per capita for the provision of water;
sewerage rates; a fire levy commission and waste management fees. The CGC then, based on the 
ratio of tourists to residents, multiplied this rate by 113% (giving an effective rate of $573 per capita) 
to determine that Norfolk should be able to raise $1.04 mil from this source each year. 

Issues 
·	The comparison between the King Island situation and that of Norfolk Island needs further 
examination in relation to the different services provided by local government (such as water)
and economic conditions (such development issues) that would impact on Norfolk’s ability to
raise revenue to the level assessed in the CGC report. 
·	There is no assessment of the effect on the local economy in increasing these fees to reflect the 
rates envisaged in the CGC report. 
Norfolk Island Government position 
The Norfolk Island Government does not agree with the approach used by the CGC in 
comparing Norfolk Island to the community of King Island with respect to effort and yield
associated with this revenue measure. At the current level of $425 per capita the island’s
government is already yielding revenue at the all-state average. Furthermore whereas the CGC 
report believes it is justified in making the comparison, (and increasing it due to tourism) to
King Island no rationale is provided to explain the similarity between fees and user charges
between Norfolk Island and King Island. Similarly to motor vehicle charges the Norfolk Island

37As acknowledged in the JSC report on…  which reported that the standard of infrastructure was below
standard when self-government was granted in 1979 
38CGCUpdate..Op.citTable E-2; p. 153 

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Discussion Paper
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Government believes these charges are already at an acceptable level and are also pegged to 
inflation through the RPI fee-unit adjustment mechanism. 

Non-Tax Revenues 
Trading Enterprises 
Norfolk Island Government non-tax revenue from the operation of government trading enterprises
(based on the current year projections39) are presented in Table 2.  As can be seen from the table
most trading enterprises return a surplus over expenses to the Revenue Fund. In total this
represents $4.811 mil in transfers and in a cumulative sense is the next largest current source of 
government revenue after GST revenues. 

Table 2 Norfolk Island Government Trading Enterprises and Revenues 

Trading 
Enterprise 
Liquor Bond 

Income 

Expenditure  Surplus 	Comment 

PSR and EDR 
suggests

Cum. Revenue 

                   705,700  

3,500,000  

2,794,300  	705,700  

private sector 
operation 

Norfolk Energy 

5,790,200  

5,016,900  	773,300  	EDR proposes

                1,479,000  

Philatelic Bureau 

Post Office 

209,000  

390,900  

207,000  

387,000  

privatisation 
PSR has
retained; EDR 
2,000  	says to review
and may
privatise 
3,900  	PSR has

                1,481,000  

                1,484,900  

Electricity 

Telecom 

3,690,000  

3,206,600  

retained 
PSR has
retained; EDR 
2,968,610  	721,390  	says to review
and may
privatise 
PSR has
retained. EDR 
2,311,940  	894,660  

                2,206,290  

                3,100,950  

Lighterage 

510,000  

305,970  	204,030  

proposes
privatisation 
PSR has
retained. EDR 
proposes
privatisation 

                3,304,980  

Airport 

1,824,800  

573,950   1,250,850  	PSR has
retained; EDR 

                4,555,830  

39Based on current Mid-year budget predictions for both revenue and expenditure for the fy 2011/12. From 
which the operation of Norfolk Air has been excluded since it will cease to operate from the end of February. 

16

Water Assurance 

Discussion Paper
···

says to review
and may
privatise 
PSR has
retained; EDR 

                4,842,930  

Waste 
management 

433,200  

146,100  	287,100  	says to review
and may
privatise 
PSR suggests
private sector 
operation;

                4,887,030  

Museums 

501,200  

457,100  

44,100  

EDR says to
review and
may privatise 
PSR suggests
Cth. and
Private sector;

                4,798,670  

280,300  

368,660  	-88,360  

EDR says to
review and
may privatise 

Sale of Rock 

100,100  

87,700  

12,400   Not discussed                  4,811,070  

On a per capita basis this represents approximately $2,700 per annum –greatly in excess of the 
estimate provided in the CGC40 and that provided by other States and Territories. 

The EDR sees the extent of the Government involvement in commercial activities as a fundamental
constraint on economic development41. It proposes the adoption of the Competition Principles 
Agreement 1995 leading to possible privatisation of GBE’s and price setting of utilities by an 
Economic Regulator as required microeconomic reforms. The PSR has a similar set of 
recommendations associated with the GBE’s however some are suggested for retention in public 
ownership. The EDR proposes that taxation reform from the introduction of rates42 (the recurrent
land tax), along with regular Commonwealth fiscal equalisation payments will mitigate the 
recurrent revenue loss from GBE divestment. In the short term it will require financing from the 
Commonwealth. 

The EDR recommends that the possible sale of the Liquor Bond be commenced in the 2012/13
financial year (phase one), with the objective of maximizing any sale price through generous
competition protections at the point of sale that are reduced over a three to five year period. 
Transfer of the Liquor Bond operation to the private sector would result in an estimated current 

40Which only considered revenues from Electricity and gas, Water supply and sewerage; Freight; Non-urban 
passenger transport and Forestry operations. 
41EDR Op.cit.p.48. 
42EDR Op.cit.p.xi 

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Discussion Paper
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year revenue loss of approximately $0.700 mil. This tight timeframe would require the
Commonwealth to assist in the reform process and through the provision of compensatory
financing for example using a mechanism of National Competition Policy Payments. Upon sale the 
only mechanism43 available to the Norfolk Island Government to retain an income stream from the 
use of alcohol on the island would be through a licensing fee for establishments such as hotels and 
restaurants, as it the case for other States and Territories. The magnitude of the licensing revenue 
stream would be significantly less than the current dividend44. 

The PSR also suggests that the Government divest itself from Waste Management and this be 
undertaken by the private sector. Waste management by the Administration is accounted for as a
trading enterprise but in effect it is the collection of a tax on imported goods (the waste 
management levy) and the expense associated with the operation of the Waste Management Centre.
In a commercial sense it is therefore not a fee-for-service operation that can be easily privatized. The
most likely approach for private sector operation would be the continued collection of the tax by the 
Administration and the operation of the Waste Management Centre undertaken by the private 
sector under contract to the Administration. 

The EDR proposes that in phase two (which is expected to last at least six years) the reform of most 
of the remaining GBE’s will take place with corporatization and following this possible
privatisation. The report also notes that the situation facing Norfolk is different to that faced in 
Australian regional economic development strategies and that it is more relevant to the economic 
development strategies that emerged in transition economies following the collapse of 
communism45. The important aspect missing from the Norfolk Island environment being a social
safety net to provide on-island support to those affected and to enable them to possibly undertake 
retraining during the transition period. 

Issues 
·	Income from Government Trading enterprises is the second-most important current source of 
revenue for the Norfolk Island Government.  Divestment from these revenue streams without 
alternate revenue sources to provide for the continuing provision of local services during the 
transition phase is not possible. 
·	The recommended divestment in the Liquor Bond operation will require immediate assistance to
facilitate any process during the 2012/13 financial year.  It will result in a revenue loss that will be
difficult to recoup from any licensing arrangement. 
·	The reform of remaining GBE’s during phase two will require the provision of Commonwealth
transition payments (for example National Competition Policy Payments) until the provision of a 
full system of transfer payments from the Commonwealth is in place  and local taxation reform is 
introduced (rates). 
·	The proposed privatization of waste management would involve the privatization of the waste
management operations by the private sector under contract with the Administration. 

43Assuming it relinquishes Customs duty and the Norfolk Island GST 
44In 2010/11 there were3 Hotels;1 Tavern; 7 clubs; 12 restaurants and 1 manufacturing licence issued. If the
NSW maximum licence fee of $2,500 was applied the total revenue would be $60K per annum. 
45EDR Op.cit. p. 95 

18

Norfolk Island Government position 

Discussion Paper
···

The Norfolk island Government is open to proceeding with the possible divestment of the Liquor 
Bond in phase one and the corporatisation of the remaining GBE’s in phase two on the basis that - 

1.	That the service provision to the community be improved in terms of cost or quality by the 
government divestment of the operation. 
2.	A financing mechanism is negotiated with the Commonwealth that provides transitional 
financing to the Norfolk Island Government during the divestment process. 
3.	The Commonwealth and the NIG engage in a process to provide an on-island social safety net to
provide support and training to employees affected by the GBE reform process. 
4.	The Commonwealth assists the NIG in negotiating a service delivery agreement with existing
business enterprise centre to provide business advisory services and skills training to enable
them to participate in the divestment process on the island. 
5.	That expertise is engaged by the Commonwealth to assist in the corporatisation/privatisation 
process. 
6.	That an enduring fiscal framework of transfer payments to the Norfolk Island Government is 
negotiated and provides an adequate revenue stream that is reliable and can be predicted with
reasonable surety into the future 

19