WA shows leadership on tax reform

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ScreenHunter_2162 Apr. 23 13.54

By David Collyer, cross-posted from Prosper

WA Treasurer Mike Nathan has heard the call from REIWA President David Airey to end Stamp Duty and fund this by removing exemptions from State Land Tax, according to today’s West Australian newspaper.

I warmly welcomed Mr Airey’s comments yesterday because they rose above the traditional selfish tax-shifting nonsense industry leaders usually offer. The WA government is keen too.

“Treasurer Mike Nahan will consider alternatives to stamp duty after conceding it was one of the nation’s least efficient taxes.

“The real estate sector welcomed the comment yesterday as the most promising indication yet of a change to the contentious tax, which costs buyers $20,000 on a median $545,000 home.

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David Airey’s righteous anger and calls for major change are well placed. KPMG Econtech estimated for the Henry tax review the marginal excess burden of conveyancing stamp duties at 34 per cent and average excess burden at 31 per cent. So, for the average $20,000 raised, a further $6,200 of wealth is scattered to the winds and lost forever.

The alternative on offer, a flat rate, nil exemption and nil threshold State Land Tax has a deadweight cost of zero. Treasurer Nahan understands this:

“The Government recognises that stamp duty on property transactions is one of the least efficient taxes in the country and is keen to actively engage in the Commonwealth Government’s White Paper processes on national tax reform and reform of the Federation.”

“(This includes) looking at options to reform State taxes and provide the States with more sustainable and efficient sources of revenue.”

State governments have traditionally been reluctant to adjust stamp duty because it is a major source of income.

But stamp duty collections have been weak in the past year, with the housing market delivering lower-than-expected revenue.

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The embarrassing weakness of stamp duty revenue makes it an unreliable base for government activity, alongside its deadweight cost. It cannot even claim to be an automatic stabilizer that moderates excesses in economic activity.

The WA Economic Regulation Authority is among those advocating sweeping reforms.

It called recently on the State to broaden the base and lower the rate of residential stamp duty and land tax.

Mr Nahan recently met the Real Estate Institute of WA over its proposal to abolish stamp duty in favour of a broad property tax, but it is understood the Government has not investigated a specific proposal.

REIWA president David Airey welcomed Dr Nahan’s comments, claiming it was the most promising sign of change. He said the tax was prohibitively high for some potential buyers and led to market stagnation.

“A broad property tax review is long overdue and must be considered, given the introduction of GST should have led to the abolition of stamp duty and other State taxes,” he said.

Politicians talking about waste are usually speaking in code about reducing government services. Voters must demand they address this other, giant waste – the deadweight cost of bad tax bases. In all, they consume around six per cent of the country’s GDP each and every year. With zero-cost taxes, on land and land-like bases, we would be nearly $100 billion a year better off, recurring, recurring, recurring.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.