For example, if you were to replace stamp duty on property transactions, and replace it with a land tax, a general land tax, there isn’t a tax economist or theorist in the country that wouldn’t tell you that would be a good move, because taxes on transactions like sales of property obviously inhibit trade, they slow down economic activity. Everyone understands that. So that would get a policy tick.
State and Territory Governments should move from stamp duties on residential and commercial properties to a broad-based land tax on the unimproved value of land.
The key elements of the Commission’s recommended reforms are:
– Replacement of stamp duties on property transfers with a broadly-based tax on land values. The shift to a broad base is essential to ensure that revenue is raised efficiently and the tax burden is not disproportionately imposed on a few groups.
– Provision for tax deferral for certain low income groups, so that taxes do not force people with less capacity to move. These include people such as owner-occupier retirees, who may be attached to the family home and their community.
– Low interest rates on deferment of taxes, for example bond rates, consistent with the policy objective of deferment.
Consistent with earlier studies, stamp duty on conveyances and the company income tax are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax.
A broad-based land tax – accompanied by the removal of inefficient taxes such as stamp duty – would provide an efficient, sustainable approach to value capture in Australia. While a number of mechanisms can provide individual solutions for specific projects, reform of land tax presents a clear opportunity for a more sustainable, longer term reform. The impact of this change could be streamlined by broadening existing state-based charges, and aligning payments with local property rates cycles.
Phillip Lowe: I don’t see any economist arguing that the current way that society taxes land is appropriate.
….. Economists and commentators
Increasing land tax would mean the reform package made the tax system fairer rather than less fair – surely an important goal of honest tax reform.
As well, universally applied land tax is more efficient than GST in that, as every economist is supposed to remember, it would do less to distort people’s decisions about whether to “work, save and invest”.
A broad, well designed land tax would raise the kind of revenue that we need to fund our schools and our hospitals but it would fight inequality, rather than exacerbate it.
It would encourage a more efficient use of housing stock, and along with reform to capital gains and negative gearing, it would combat the extraordinary inequality and instability we see in our housing market.
Replacing stamp duty with a land tax would make housing more affordable for first time home buyers. It would also give governments a further reason to invest in infrastructure that increases the value of land, such as roads and public transport.
And unlike other taxes, land tax is impossible to avoid: as much as he might like to, Malcolm Turnbull can’t move his Point Piper mansion to the Cayman Islands.
I think there’s a strong case, based on the principles of good tax design, for abolishing stamp duties entirely and replacing them with a more broadly-based land tax which includes owner-occupied properties (and which could be collected by local governments in exchange for a small commission, thereby allowing State Governments to abolish their revenue offices if they also outsourced the collection of payroll taxes to the ATO). Low-income owner-occupiers such as retirees could be catered for by allowing them to defer land taxes as a charge against their estates (as some local governments already do with municipal rates), although one can imagine the howls of protests from the would-be inheritors of otherwise unencumbered properties at this suggestion. Obviously there would need to be some transitional arrangements for people who had recently purchased properties to ensure they weren’t unfairly taxed twice, but they would not be too difficult to devise.
…. Interest Groups
…in the absence of the prospect in the medium term of higher GST revenue an alternative way to finance the removal of the most inefficient state taxes should be investigated. One option is to finance the removal of residential and commercial conveyancing duties would involve using the existing local government rates bases or reformed land tax bases to phasing out the inefficient duties. There would be substantial gains for the economy if the burden was assumed by an annual charge on the much less inefficient unimproved capital value tax base rather than the turnover tax levied on the full sale price.
…states should be encouraged to lower stamp duties on property and insurance, make greater use of a broad-based land tax and lower their reliance on payroll tax.
The Insurance Council of Australia (ICA) says replacing inefficient insurance stamp duties can help state and territory governments raise extra funds while remaining within the existing fiscal envelope.
It follows the release of modelling by KPMG that showed replacing property stamp duties with a broad-based land tax could boost the NSW economy by $5 billion a year.
Stamp duty rollback can be financed by increases in land taxes, as advocated by the Henry Report, although there really needs to be base broadening in this area to make the land tax more fully tax economic rent from any land.
Higher property taxes could also be used to fund the reduction and eventual abolition of state stamp duties on property. Stamp duties are among the most inefficient and inequitable taxes available to states, and their revenues are inherently volatile. Although abolishing stamp duties is not the focus of this report, shifting from stamp duty to a broad-based property tax would provide a more stable tax base for states, spread the tax burden more fairly, and add up to $9 billion annually to GDP.
The economic case for a land value tax is simple, and almost undeniable.
“If the goal of tax reform is economic growth, then the best reform option is a switch from stamp duties to efficient land taxes,” ACOSS CEO, Dr Cassandra Goldie.
“Replacing stamp duty with a more predictable and equitable tax would provide state governments with a more reliable source of revenue,” HIA Chief Economist, Tim Reardon.
“Replace stamp duties with a broad-based annual land tax that will dampen house price inflation, stimulate more building of housing for rental purposes and encourage the development of idle land. If it is necessary to allow concessions on the land tax for equity reasons, the dollar value of the concession should be determined against income or wealth and not on the land value. There needs to be a suitable transition process in order to ensure that no household pays double taxation on stamp duties and land tax.”