For some time now, I have lobbied to shift state tax bases away from stamp duties on property transactions towards broad-based land taxes. The benefits of land taxes are numerous, but include:
- Less volatility in revenue collection than stamp duties, since land taxes are not dependent on the volume of transactions;
- More equitable than stamp duties, since they spread the tax burden across all home owners, rather than the small proportion of buyers in a given year;
- More efficient use of the housing stock, since home buyers would be more likely to move to homes that better suit their needs;
- Assisting in the provision of new housing by helping to make infrastructure investments self-funding for governments, since any land value uplift brought about through increased infrastructure investment (e.g. new roads, trains, etc) would be partly captured by the government via increased land tax receipts; and
- Penalising land banking and vagrancy, effectively increasing the supply of land in the process and bringing new homes to market more quickly.
Now another potential benefit of broad-based land taxes has been identified, with The Australian’s James Pawluk arguing that land taxes could help put downward pressure on the Australian dollar by taking heat out of the housing market and allowing the RBA to cut interest rates further than would otherwise be the case:
…ironically it is the most fiscally challenged layer of government that could be best placed to create the conditions that would enable a lower dollar — by reforming taxes on property in a way that creates room for the Reserve Bank to cut rates…
The states would only need to start talking credibly about increasing and broadening land taxes to take heat out of the housing market, thus freeing up, if not forcing, the RBA to do what it has basically said it wants to do…
This means compensation could start flowing to the “losers” from reform, at least the most vulnerable ones being mortgagees, before any additional taxes are paid.
The rest of us are still “winners” in as much as the additional money pumped into the economy and the lower dollar help strengthen growth…
For the baby boomers who have already paid off the mortgage on their tax-free home that is not included in any assets test, they might like to think of a land tax as the states unlocking equity in their home to pay for the services they will need in retirement (with more left over for their kids than if they took out a reverse mortgage).
It’s an worthy concept, although I am not sure how it would be achieved in practice, since it would face the same objections from vested interests as other property-related reform proposals.
