How to abolish stamp duty

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By Leith van Onselen

The Property Council of Australia (PCA) has provided a submission to South Australia’s review of state taxation, which repeated its call to abolish stamp duty in exchange for a broad-based land tax. From The Canberra Times:

Daniel Gannon, the executive director of the South Australian division of the Property Council says stamp duty is a drag on an economy in transition like South Australia, which needs a much more mobile labour force and as much flexibility and productivity as possible.

But he says a smart model needs to be developed which delivers a honeymoon period for people who’ve bought properties in the past few years and paid out large lump sums in stamp duty under the system now.

“We want to ensure a honeymoon transition takes place carefully and effectively to remove any chance of a double whammy impact,” Mr Gannon says…

Homebuyers who have made purchases in recent times… will be hit hard if they were forced to immediately transition to paying an annual payment under a broad-based flat land tax, and naturally be highly resistant to the change.

I won’t go into all of the reasons why abolishing stamp duties in exchange for a broad-based land tax is a sound idea, since this has been covered previously.

What I will say is that the obvious solution to the PCA’s concerns is to provide a credit to anyone that has purchased a home in the past 10 years, equal to the amount of stamp duty paid, and then subtract the hypothetical land tax that would have been paid since the home was purchased.

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For example, if I purchased a home in Adelaide in late 2011 for $500,000, paying stamp duty of $21,000, and my theoretical land tax bill would have been $2,000 for each of the four years since purchasing the home, then my tax credit would be as follows:

  • $21,000 minus
  • $2,000 (2012);
  • $2,000 (2013);
  • $2,000 (2014);
  • $2,000 (2015).
  • equals $13,000 tax credit to be carried forward.

Does anyone have any better ideas of how to deal with the transition from stamp duties to a broad-based land tax?

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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.