It’s time to shift states to land taxes

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By Leith van Onselen

As noted yesterday, the decline in stamp duty receipts is posing problems for Australia’s state & territory governments.

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Stamp duty is an inherently volatile source of taxation revenue, since it is critically dependent on both the volume of housing transfers as well as the price at which those homes transact. During the early-to-mid 2000s boom, when both prices and transactions soared (see next chart), the states found themselves awash with cash, with total stamp duty collections rising by over 150% in the eight years to 2007-08. Since that time, however, stamp duty revenues have fallen by -18%, putting the squeeze on state and territory finances that had become accustomed to the good times.

The volatile nature of stamp duty receipts adds further weight to arguments for reform on both equity and efficiency grounds.

As argued previously, stamp duties unfairly penalise people that move to homes that better suit their needs. Obvious examples include baby boomers downsizing from large family homes and young growing families upsizing to bigger family-friendly homes. Such disincentives inevitably lead to an inefficient use of the housing stock, such as empty nesters occupying large homes with multiple spare bedrooms. Stamp duties also hinder labour mobility since they discourage workers from relocating closer to employment.

As shown in the above RBA chart, just over 4% of the housing stock is currently transacted annually. Accordingly, we have the crazy situation where a small minority of households are paying taxes that support services for the whole community – all for the privilege of moving to a home that better suits their needs!

As shown in the below chart, stamp duties can chew-up tens-of-thousands of dollars when purchasing a median priced home. Seeing as we all consume government services, wouldn’t it then be fairer and more efficient to levy each household a much smaller amount, rather than penalising only a small minority with huge tax bills?

A fairer way of sharing the tax burden would be to abolish stamp duties and extend land taxes currently applied on investment properties to one’s principal place of residence. As shown by the next chart, land tax receipts have proven to be a remarkably stable source of revenue when compared against stamp duties, since they are not affected by transaction volumes.

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Broad-based land value taxes (LVT) would also assist in the provision of new housing via two channels. First, an LVT would help 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 LVT receipts. Accordingly, governments would be more likely to facilitate development, rather than act to restrict it in a bid to save on infrastructure costs. Second, an LVT would penalise land banking and vagrancy, effectively increasing the supply of land in the process and bringing new homes to market more quickly.

As with any change to the tax system, there are transitional issues that would need to be worked through in shifting from stamp duties to a broad-based LVT.

One concern is that those who recently purchased a property (and paid stamp duty) would be double-taxed via an LVT. A logical solution is to credit all landowners with the amount of stamp duty paid and then deduct the hypothetical land tax they would have paid since the date of purchase.

Another concern is that asset rich, cash poor, retirees could be left with LVT bills they cannot pay, requiring them to sell their homes. A logical solution is to allow these people to accumulate their LVT liability, with the bill payable upon death (via the estate) or once the house is eventually sold (whichever comes first).

Last year, the ACT Government announced the bold (and sensible) plan to transition out of stamp duty over 20 years, replacing it with a broad-based land tax levied via an increase in property rates. Reforming stamp duty was also a recommendation of the Henry Tax Review, which characterised stamp duty as an inefficient tax, and recommended replacing it with broad-based LVT levied on all properties.

The options are there, and with stamp duty revenues shrinking, it is in the state and territory governments’ financial interest to pursue reform and change the tax mix.

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Comments

  1. Hear, hear UE.

    I would like to see such taxes go further (in the number of taxes replaced), and faster (why not phase in over 5 years).

    I also believe the political fear is overblown. Sure, the vested interests will appear, and begin to shout doom from the backs of utes (or hand-in-hand on their empty tracts of land), but in simple terms, removing x number of taxes and raising one tax is potentially an easier sell than a new MRRT, carbon, GST or other tax.

    The potentially massive cuts to income taxes, if this is coordinated at a federal level, will be enough fodder for the ‘what about me?’ whingers and moaners.

  2. I sure hope Denis Napthine is a MB reader..

    Thanks for the great analysis Leith. As always, you highlight the issue clear as day.

  3. The Patrician

    Good piece Leith.

    How about an interview with the ACT treasurer on the implementation/progress/results of ACT LVT? Given the falling SD revenues I get the feeling other state treasurers (and others) might be secretly interested in how the ACT have done it.

  4. reusachtigeMEMBER

    Sucked in to them! Unfortunately though it affects us all. They’ve supported high land prices to the point where many can no longer get in and transact. Suffer!

  5. Pfh007MEMBER

    Would not surprise me if NSW moves in this direction as part of the proposed merger of admin functions of many metro councils.

    Remove the duplication and dopey turf protection between the village debating societies and get their financing on a basis that encourages them to attract people to live in the council area.

    Of course this change from stamp duties to land tax is an obvious policy for the ALP to champion but they are probably too thick to see the benefits for lower income earners of affordable housing (the nutty left and greens are still obsessed by having everyone in public housing with a public servant as the landlord) and they probably still have too many land bankers funding their lamington drives and sausages sizzles.

    • “Remove the duplication and dopey turf protection between the village debating societies and get their financing on a basis that encourages them to attract people to live in the council area.”

      Let’s turn this around, If local councils were directly funded by 15% of residents income tax receipts ( as in Germany I believe).

      Methinks they would be lot more willing to liberate land supply and speed up the permissioning process in the interest of maintaining and growing a revenue stream.

      This would require the 1941 taxation power grab by the federal govt to be undone.

      • Income tax? To pay property costs? Garbage! Council services are property services and the benefits accrue to the land. There is the base, right there.

      • I am with the Swiss on this one, state services (healthcare, welfare etc etc ) should be provided by local govt and financed by local taxation, direct and indirect.

        Federal ministries such as DoHA should be wound up and abolished.

  6. Why is the total land tax receipts chart growing throughout at a relatively constant rate? Is it the rate of land tax, or the infestor vs ppr distribution, or the rising price of land? Etc.

    I think the major hurdle the government will have is to do with trust – it is way too easy for them to fiddle with the %’s… At least with stamp duty one must “opt in”. Ca

  7. Yes please! Access to inexpensive land for all citizens guarantees prosperity. Switching taxes from wages to the natural endowment is the key – as the Australian Treasury helpfully points out.

    Stamp Duty is a fine paid by buyers, whereas State Land Tax is an ideal way to fund the infrastructure and community facilities that increase land’s value.

    Don’t waste the bubble burst, Premiers!

  8. LabrynthMEMBER

    “Another concern is that asset rich, cash poor, retirees could be left with LVT bills they cannot pay, requiring them to sell their homes. A logical solution is to allow these people to accumulate their LVT liability, with the bill payable upon death (via the estate) or once the house is eventually sold (whichever comes first).”

    This is stupid and just pandering to the grey brigade. The whole point of a land tax is to make sure the land is being used to its highest and best use. I think the number of people ‘forced’ to move out due to land tax would be a minimal amount. Sell the 5 bedroom house and move into a 2 bedroom house/unit/townhouse.

    • It may be “stupid and just pandering to the grey brigade”, but how else would such a proposal get up? Like it or not, the boomers control policy (at least for the time being), so there has to be compromises, even if they are not ideal.

      • LabrynthMEMBER

        I don’t think a policy where the government makes large sums of money when a generation dies would be morally correct. Reading history books its not beyond governments to do what it takes to get money leaving the door open for poor governments to with hold health care etc so that people with half a foot in the grave get an extra push to go all the way in.

        I think that there should be brackets. EG 60-70 pay 100% of the land tax. 71-90 pay 70% of the land tax and anyone that lives beyond 91 pays 50% of the land tax. It will be based on the oldest person who owns the property. Letting the land tax accumulate on the property is a bad idea.

      • LabrynthMEMBER

        Regardless, you are right. In my opinion throwing a bone to the baby boomers to get a land tax implemented is a small price to pay.

      • The first preference would be reverse mortgage taken out by the asset rich/cash poor so that tax revenues are not deferred. RM’s should be only provided by Centrelink as part of the Pension Loan Scheme that is already in place.
        Having different rates for different ages is ageist and does not make any real sense to me. It would encourage people to rort ten system.

      • LabrynthMEMBER

        @ wukky_nilly

        Your not taking into consideration how much longer people will live for. Also, the reverse mortgage scenario must be based on the land value not the property value. What happens in the market goes down and the land is worth less than the accrued land tax bill? Does the government foreclose, kick the elderly out and take the property?

        You can rort the system easier on the asset rich/cash poor model. Who determines who is asset rich/cash poor. What stops people from withdrawing their super at 65 and sitting on the cash? It is very easy to hide cash.

        It is also an administrative nightmare keeping track all the elderly who owe land tax and how much they will owe after a 20-30 year period.

        Keep it simple.

      • No, the RM would be based on the total property value, no just the land. A negative equity guarantee would be provided by the state and it would be offered to any welfare recipient not just pensioners.
        As I said it would be paid yearly by this method and not accrue.
        That is simple.

      • The RM would also work for those pensioners who, under a change to include the PPOR value over $750k, in the asset test for pensions, so they too can have funds to live on.
        It simply is not fair that a pensioner can live in a $3 million home, have little else in investments and get the full pension. Mad as batpoo!

      • IMHO it’s not a matter of throwing a bone to anyone. Most governments understand that the retired elderley have a diminished capacity to earn money, and offer discounts on rates etc for those who hold pension cards.

        Much the same would be done in the case of land tax. It does mean however that some land tax is still levied and that makes life a little bit more difficult for the elderley who own homes in sought after areas. Those who are hit the hardest are also those who received the greatest windfall for living in their house, as values rise, not that it was within their ability to control that, it just happens.

        This tax eventually forces most of them to sell to a new user who can put the land to more efficient use. It’s a way of recycling land for more efficient use.

        I see a transition phase as being the greatest obstacle. Obviously any recent buyer who has already paid a high price in stamp duty isn’t going to want to pay it all over again, and a large number of those buyers are young people in the Gen X and Gen Y age groups. Something will have to be done to credit them with the duty already paid.

        If developer contributions and statutory fees such as stamp duty are paid via land tax the price of land would fall significantly and the cost of stamp duty would no longer be a transaction impediment to anyone who wants to buy their own home.

      • LabrynthMEMBER

        @ Willy_Nilly

        Current land tax is based on land value not the property value. There is good reason for this but I am not going to explain this now.

        If a land tax were to be implemented it must be based on the land component.

        Offered to any welfare recipient???? you must be crazy. Maybe any welfare receiptient over a certain age but it would be madness to offer it to anyone, it would lead to massive holes in the budget.

      • Peter
        Yep, Stamps paid within the last 5 years would be a credit against the land tax.

      • Labrynth
        Yes of course land tax is only on the land value, however the RM is based on the property value.
        The RM should be offered to any welfare bot and that does not cost the govt one cent more. If you are out on a disability pension etc, you should have access to a RM by Centrelink to pay the LT.

      • drsmithyMEMBER

        ?

        HECS is (or was ?!) interest-free – that’s kind of the point. 🙂

        The incentive to pay up-front, or an accumulated HECS debt early, is in the discount (which has been, I believe, greatly reduced so there’s really not much incentive at all anymore).

      • Ha ha, they don’t call it interest. They call it ‘indexing’. You are correct on the removal of discount though. I think it used to be almost 25% if paid up front. Not even half that now and I believe they are removing it entirely.

  9. Andy, with land tax, if government mal-invests in a road to nowhere land prices and revenues wont rise – a powerful incentive for government to behave itself.

    The constant increase in SLT revenues reflects rising land values offset by big cuts to the top rates a decade ago. When prices fall, so does the tax.

    I suggest also, your list of ‘base public essentials’ may be quite different to another person’s. You may not share my enthusiasm for a quality universal primary education system, while I might not think much of the negative gearing tax expenditures and prefer lower tax rates.

    I am bemused you are unwilling to ‘trust’ government with economically-sound tax bases but seem content to let them have bad ones.

    • The government may be wise enough to not build a road to nowhere because that is such a blatantly obvious waste and would win no votes (more likely lose them), however, I haven’t seen much evidence of value-for-money in their spending habits.

      My concern, is that the government will just keep increasing the LVT %’s to cover their latest new “essential” (debatable yes… comes down to votes), poor value-for-money on spend, terrible contract management, cost blowouts, etc. I’m bemused you trust the government to set a fair LVT (and that you think I’m pro-stamp duty – fair stretch!).

      If I am to vote for a tax that will be paid year in, year out, just for owning a property (one day… go DBN!), on top of all the other taxes I pay and all the subsidies/benefits I miss out on, then I want some certainty that I won’t be shafted yet again – Something that an optional tax such as stamp duty ensures if one does not buy.

      • “My concern, is that the government will just keep increasing the LVT %’s to cover their latest new “essential” (debatable yes… comes down to votes), poor value-for-money on spend, terrible contract management, cost blowouts,”

        That is solved by returning the local franchise to where it was when only property owners and implication ratepayers had the right to vote.

        If you pay LVT and/or Rates, you get the exclusive right to decide how the money is spent.

        Two foxes and a goose deciding what’s for dinner is not democracy.

      • That is solved by returning the local franchise to where it was when only property owners and implication ratepayers had the right to vote. If you pay LVT and/or Rates, you get the exclusive right to decide how the money is spent.

        Do the words “Jim Crow” ring any bells? On weekends, do you wear a white bedsheet over your head?

        While we are at it, how about bringing back hereditary peerage and slavery? The New Gilded Age would be incomplete otherwise.

      • Is that an excluded middle fallacy I see before me….

        Politicians promising to rob Peter to pay Paul, will always have the support of Paul.

      • You were born in the wrong century, man. We’ll never go back to the era of serfdom and landed gentry. But don’t let me discourage you.

      • That’s another excluded middle fallacy.

        I refer you to De Tocqueville’s thoughts on the matter.

      • Two foxes and a goose deciding what’s for dinner is not democracy.

        That is democracy actually. If you have 3 decent people, would 2 of them vote to eat the third person? No. Democracy works well when the people are decent. If you have a population of selfish cretins then perhaps a brutal dictatorship is the better system to employ.

      • There is no such thing as ‘decent’ people.

        Only rational actors driven by their own self interest.

        When two thirds of the electorate depend on the state for either employment or welfare payments, then the remaining 1/3rd better get used to having all it’s feathers plucked.

      • Smart people will act “unselfishly” because it is in their own interest.
        eg. I will go to some effort to return items that I find dropped on the street. In return I hope that an item I drop might be returned to me. It is called community or society. There are some rational actors who are smart enough to be “decent” for their own self-interest.

      • Andy, flipping the argument from where government raises its funds to where it spends it takes us nowhere.

        I do not say you prefer SD, merely observe quality tax bases are better than bad ones.

        This country enjoys low taxes compared to our OECD peers. I want that to continue. Introducing an LVT is not to make government rich, it is to allow the removal of other taxes we can prove are causing damage.

        LVT is equally optional at a personal level as SD: both can be avoided by not buying (holding) land.

      • Alex Heyworth

        ” I want some certainty that I won’t be shafted yet again – Something that an optional tax such as stamp duty ensures if one does not buy.”

        Does that mean that you only buy GST exempt goods?

        More realistically, could I point out that raising taxes is frequently electoral poison.

      • drsmithyMEMBER

        My concern, is that the government will just keep increasing the LVT %’s to cover their latest new “essential” (debatable yes… comes down to votes), poor value-for-money on spend, terrible contract management, cost blowouts, etc. I’m bemused you trust the government to set a fair LVT (and that you think I’m pro-stamp duty – fair stretch!).
        Exactly the same logic applies to income tax. When was the last time income tax went up ?

  10. How does a transition over 5 or 20 years figure in the numbers of any property speculator? More on any decision to buy more properties. Shouldn’t the announcement of such a measure even over any timeframe cause a monumental shift in thinking for at least a significant number? If 25% of those intending to add to their portfolios now reason that the CG gains they foresee will make it unattractive what then?

  11. I’m all in favour of land and wealth taxes over income taxes. However I’m sure the government has heard this proposal before and rejected it. Call me cynical but I believe the government would rather go on a safety drive and double speeding fines, council fines and make trivial things cost money over putting a land tax in. Wait they are already doing that.

  12. One thing I do not understand: High stamp duties are clearly suppressing the transaction activity, so why isn’t real estate industry clamouring for abolishing stamp duties in favour of land taxes?

      • The RE industry is terribly conflicted. If they put on their sales hat, they want an end to SD and more transactions. But almost every agent aspires to be a little landlord, to use their industry knowledge to build a property portfolio – that’s why they tolerate the poor status and awful hours.

        IMHO, this is a disgusting diversion of energy and talent to rent-seeking.

        Don’t Buy Now!

      • They are very short sighted.

        Ultimately, a LVT approach is likely to encourage higher transaction volumes as there will no longer be a “Moving Tax”.

        Then they really can say it is always a good time to buy and sell.

  13. Land taxes further violate private property rights.

    If you truly own something, then no other party can demand something from you for you to continue to own it.

    Not that private property rights aren’t already violated with regulations, zoning and council rates.

    • LabrynthMEMBER

      In theory yes but you are not taking into account that with the implementation of a land tax many other inefficient taxes will be removed.
      Imagine being able to remove income tax or lower company taxes, spending money in those sectors would be better than plowing it into existing property that has no real benefit.

    • Land taxes further violate private property rights. If you truly own something, then no other party can demand something from you for you to continue to own it.

      True. Can you explain why one generation should be allowed to “own” any natural resource that they did not create and then sell it to the next generation at extortionate prices?

      Perhaps we would be better off with no private property rights in land.

      • Alex Heyworth

        That is the odd thing about the ACT move from stamp duty to land tax. We don’t have freehold title, only 99 year leasehold. So we’ll be paying land tax on something we don’t own. Of course, landlords are already doing that.

      • You have the right to own land if you come to a mutually beneficial exchange with the previous owner and decide to trade the title.

        Why should the state be the owner of all land ? I don’t particularly like the Chinese model.

      • You’ve been spending too much time on mises.org
        I do not accept that any person is a valid previous owner. Their is only one earth and it should be shared, not monopolised.
        Your model is a form of slavery (to the previous owners)

      • Alex Heyworth

        One generation doesn’t have the right to sell it to the next at exorbitant prices. They have to find a willing buyer. Absent that, the land passes to the next generation at no cost when they die.

    • You don’t own real property, you pay for the title. Ownership remains with the sovereign.

  14. Private property rights apply to man-made merchandise. There is a social responsibility in owning land as it is part of nature and we all depend on it for our existence just as we depend on the atmosphere and the sunlight. Land tax is not really a tax at all. It is a holding fee for the privelege of excluding others from a part of the planet.

    • So you are in favour of slavery then ?

      Individuals are obliged to maintain the land as decreed by the rulers ?

      • Do you own your self, your body, your time, the work of your hands and mind? If you are paying income tax or any of the other about 134 taxes on work and its products then you as an individual have been socialised. Maybe enslaved is not too strong a word.

        The value of your land is not due to anything you do as an individual. You could be in a coma for years but increase in your land value would be due to the economic activity of the community, population pressure etc. That value is our social surplus and is the ethical source for revenue for community needs.
        If it is not collected for the community that created it, it is privatised and is the unearned gain that our governments have directed us to pursue through public policy favouring speculation.

        That has resulted in unaffordable housing and business sites, and intergenerational blame. It is a divide and rule policy as landowners think they are the winners. No-one wins but the greatest financial benefits go to the owners of the bulk of debt-free land.

  15. Over the last 4 years there’s been around $40 billion in duty collected by the States, or around $10 billion per year.

    By switching to land tax, and foregoing paid duty as a credit, in order to generate the same amount of revenue, the rate must be higher than what would normally be the case, as you’re crediting the prior duty paid, but not retrospectively taxing people on land.

    Leith, do you know how the ACT dealt with this issue? Are they starting with a higher land tax rate, and reducing it over the 20 year period? That’s the only way I could think of, charging more to those who haven’t paid duty until those that have re-enter the tax base.

  16. WeNeedaWarpDrive

    I don’t support the land tax idea for the simple reason that it kills the dream of home ownership.

    I want to get to a point where i have a house paid off with very low fixed costs and can therefore just work a couple of days a week and do the things i want to do for the rest of the time.

    Agree that there has to be a better option than stamp duty.

    Adding the required tax revenue to GST would have to be much more simple to implement and spreads the tax over a wide net of people.

    • Surely you will be consuming goods and services in retirement? So what’s the difference whether tax is paid on land or via the stuff you buy? Land tax is also less regressive than GST, which impacts the poor more heavily than the rich.

      • WeNeedaWarpDrive

        The difference is I have a choice if it’s via GST, if i want to work less and spend less I can, or work more and spend more.

        With land tax I would have no choice.

        Plus, transferring stamp duty tax to a federal level via GST or income tax would take away a lot of power in the state governments. I support the view that state governments need to be severely cut back. The GST area is an opportunity to move toward that, at least from a power dynamics perspective.

      • “I support the view that state governments need to be severely cut back”

        You think Australian governance is crap now, just wait until you experience it driven wholly from Moscow… Sorry Canberra.

        I’ve lived in the two most centralised countries in Europe, both a fraction the size of Australia.

        Zero accountability as the local authority can blame the centre for everything due to lack of funding or outright political neglect due to the area having a safe seat for the incumbent party.

        Both states wholly captured by the mandarinate as a consequence.

        Local councils having to write to the Govt Dept in the capital to obtain permission to replace lamp posts, I kid you not.

    • This may not be correct but my understanding is that the current taxes on holding land (council rates) and utility bills do not cover all the costs to the State of ‘maintaining’ your land and access to it.

      Thus the only way your model of retiring with ‘low costs’ works is everyone else is contributing to the cost.

      Land tax allows the cost of ‘servicing’ the land to be recovered from the land that benefits and it also provides a simple and difficult to avoid broad based tax that could limit the reliance on other more economically dysfunctional taxes like stamp duty (moving tax) or payroll tax (tax on employing people) or income tax (tax on working).

      More reliance on both Land tax and GST is best.

      • Pfh007MEMBER

        A reference?

        For what – you are the one asserting that the current level of rates and charges on owning residential property are sufficient to allow you to retire, pull up your drawbridge and grow veggies without being a burden on the taxes of your neighbours.

      • WeNeedaWarpDrive

        I was referring to your comment that current council rates and utility bills don’t cover the councils costs of maintaining existing residential homes. I was wondering if you had a reference about that.

        My comments above do not indicate stamp duty should be replaced with nothing, hence your veggie comment isn’t relevant.

      • Pfh007MEMBER

        Well it appears we are agreed that the taxes on your land should recover the full costs to the state associated with servicing it and providing access to it.

        My understanding is that the current charges associated with owning residential land do not cover all of those costs but I am happy to be wrong on that as my retirement ambitions are similar to yours and lower land tax/rates will assist that.

    • My concern is that if stamp duty is removed, prices will quickly rise (just like we’ve seen with FHB grants).

      Now you’re paying the same amount anyway plus your are now paying land tax on it forever.

      • hehehe, you guys need to do better. This is not some lame-stream media outlet where where half of the writers and most of the readers are ignorant dubf7cks. People here have brains and use them to think. Surprise!

      • Are you suggesting that if land will come with a perpetual liability attached to it, people will pay more for it?

        Perhaps there will be a a small number of brain-dead specufestors who rush in to ‘snap up a bargain’ by saving stamp duty, but they should quickly be cured of their delusions…

      • I’m suggesting they’ll pay more for it because they think they have more money to spend.

    • On the contrary, land tax promotes home ownership. This is because of the way land price works.

      Land tax is simply a counterweight to mortgage debt.

      If two parcels of land are offered for sale and one has a land tax liability attached to it, the rational buyer will pay less for that location. This infers less mortgage debt for the buyer and less profit for the developer and banks. Such a tax replaces decades of bank interest payments with a lower land tax paid annually to the government, with such revenue allowing reduction of taxes on work and saving such as income tax or GST. An owner-occupier vendor is not disadvantaged as they buy and sell on the same market and could benefit from reduction in other taxes.

      Land price is simply the private capitalisation of a parcel of land’s rent, net of charges such as rates and land tax. Higher rates and land tax mean less privatised rent to be capitalised into land prices which means LOWER land prices. Basically you pay this anyway, either as a lump sum in your mortgage with bank interest or annually as a lower land tax.

  17. I don’t support this either because it imposes a cost on simply owning land. Why should I be forced to pay a tax simply for owning it.

    The accumulation of a tax liability for cash poor people, payable on death does not solve the problem. The deceased’s estate will then be forced to sell the property if they don’t have the cash to pay the accumulated tax liability.

    I don’t support stamp duties but extending land taxes to the principal place of resident is unfair.

    A better solution is to reduce spending on non-essential government services and abolish stamp duties.

    • You might take a broader perspective if you consider this idea:-
      If it was physically possible to parcel up the atmosphere, and charge others to rent or buy it to breathe, it would certainly have been done.
      Born into such a situation, few would question it and there would be much community discussion about the unaffordable cost of breathing.

      My point is that land is part of the natural environment, given by nature/God/the universe. It has no cost of production, and has locational advantage and is essential for life.

      It is our common heritage. Land value tax is our way of reconciling the necessity of private occupation and secure tenure of land with the equal right of others to the planet.

    • Capo – on this one I fully agree – it’s a lazy tax for governments who don’t want to extend user pays to more areas. It would completely distort land ownership to those who are not only asset rich but also income rich. Not everyone who lives in a good location has a high income and to be forced to sell up because a government wanted to tax me out of my home so some income rich prick could buy it instead – would seriously piss me off.

      It’s also a lazy idea to promote as a solution – no State govt will touch this idea as they would be kicked out of office pronto. That the ACT did – is just typical of that make believe government.

      On every point made by Capo – I agree. Get rid of stamp duties and slash govt spending on non-essential government services.

      And while we’re at it – get rid of company taxes – which as we all know are just hidden consumer taxes – that all too often are evaded creating unfair advantages for some companies over others.

      My money is on the Govt slashing GST free imports to $20-50. Modern IT system can completely automate the process. The cut off should be three times the cost of a postage stamp – which works out to pretty much 20 dollars as being the minimum GST free import.

      • Hi Rocket boy,

        You say

        “Not everyone who lives in a good location has a high income and to be forced to sell up because a government wanted to tax me out of my home so some income rich prick could buy it instead – would seriously piss me off.”

        That would piss me off too, particularly because what that rich prick actually wants to do is buy it off me, and rent it back to me. Currently, the whole system is designed to benefit that rich prick who can afford to buy it out from under me. How? well, they can fudge the books and negatively gear it so that it looks as though its profit neutral.

        Meanwhile I pay income and other taxes that go to contribute to everyone’s well-being. But that rich prick? Nope, he will take half my post-tax income (more if he ‘believes’ I can afford it) and for what? To live in this country? Isn’t that tax? I dare say, that the only effective tax source out there, land tax, does apply to us. All of us. BUT It has been privatised. You and I don’t benefit from the fortunes we pay to the banks, to the monopolist land rich families of yesteryear. All we get is tax hikes on our income.

        Now, tell me if that pisses you off more?

        How would society be if instead of taxing my labour, and then having private tax take what’s left. The tax man just when to the landowner? For one thing, you wouldn’t want to sit by and just live off land speculation. The payback period would be way too long. Those land rich pricks would start working. People like me could actually have some real money tucked away for retirement and not be forced to pay now, some mythical price for land, based on its ‘speculated’ value.

        A speculated value that DEMANDS we get huge population growth, and foreign investment by FOREIGN land lords (rich pricks from other countries).

        Land tax will force the true value of the country back into the coffers of those who SHOULD be taking care of us, the Government, but cannot afford too.

        This may have sounded like a rant, but double taxing pisses me off.

        By the way; The stamp duty proposal actually is set up to protect retieress to begin with.

        The reference for this is (http://www.abc.net.au/news/2013-02-01/janda-stamping-out-inefficient-duties/4496356)

      • Hi Matt – not quite sure what you are getting at.

        I don’t have a problem with population growth – or foreign investment.

        There is plenty of land in Australia and there should be a lot more land releases all along the coast. Flooding the market with land releases would drive down prices a long way. And if we had a lot more skilled immigration we would have the tradies to build houses at more affordable prices. And if we reserved a portion of local steel etc for domestic use we would have much lower building costs.

        Land taxes just seem like an easy way to slog homeowners and renters with more taxes without doing anything about the ridiculous exemptions afforded to mining companies and self funded retirees. As to negative gearing I can’t see how you can rid of it and not impact a whole slew of other business cost deductions.

  18. Stephen Morris

    It’s all very nice in theory but the politics would kill it for all sorts of reasons.

    If land tax proved to be a good revenue raiser, then the Commonwealth would not allow it to be left with States. It would move to seize it as it has moved to seize all the useful taxes (or, as I predict, will do so shortly in the case of mineral royalties and payroll tax by using the expanded corporations power).

    The underlying problem of Australia is not a fiscal one. It is a political one. There are two utterly incompatible visions of what Australia should be.

    On the one hand there are those who hold that Australia was established as a federation, and that robust federalism is the most economically efficient system of government (as in the US, Canada, Germany, Switzerland).

    On the other hand there are those who hold that federation was only ever a temporary expedient on the route to fulfilling Henry Parkes’ dream of a single unitary state – One Nation – covering all of Australasia.

    For the latter camp, the very idea of financially independent States is intolerable. Financial dependence has become the key weapon with which they impose central government control on the States. Historically, the voters of Australia have rejected such centralisation, voting down 30 of 32 referenda seeking increased Commonwealth powers.

    It is in response to this failure at the ballot box that the Commonwealth has relied increasingly on fiscal dependence. And for fiscal dependendence to work you must keep the States poor.

    And it is the latter camp also that holds the levers of power, most notably through its appointment of High Court judges who – through novel interpretations of the Constitution, such as Capital Duplicators – can invalidate any State tax.

    • +1

      And it won’t end well. Slavishly copying the Westminster model where everything is slave to the whim of the executive meant that the knaves will always win out as there is no constitutional framework there to frustrate them.

      The states need to step up and take their powers back, starting with direct taxation raising powers.

    • Pfh007MEMBER

      Good summary, though it is not quite as grim as that.

      As you note

      “It is in response to this failure at the ballot box that the Commonwealth has relied increasingly on fiscal dependence. ”

      Clearly, there is political mileage in resisting centralisation as the voters consistently do so.

      The problem is that most of the pollies and public servants at State level have tended to share the centralised vision splendid (with some noteable exceptions – like Joh).

      If a few pollies who start to see the sense of a decentralised competitive federation decide to tap into the population who like the idea of decentralisation and state identity the momentum could shift.

      Slowly but surely more people are starting to question the notion that large centralisations of power (political and economic) is a good idea.

    • The Patrician

      The LVT appears to be working ok in the ACT.

      No mention of Henry Parkes or the High Court.

      • Alex Heyworth

        Probably because it hasn’t happened yet. The ACT government has an in principle commitment to a broad based LVT, but no legislation has been drawn up yet.

      • Stephen Morris

        Not only that, but the ACT is so small as to be insignificant and it is also under complete Commonwealth control anyway.

        The ACT is a territory over which the Commonwealth has unimpaired jurisidiction if ever it chooses to exercise it. Unlike the States, the Territories’ autonomy is completely illusory.

    • Steven Spadijer

      I would only add:

      1) that the framers of the Constitution who fell into the “pro-federalism” camp were all pro land tax, that is, Georgeists who believe virtually all taxes should be replaced for a single tax on land (so “economic rent” funds government)[*]. Thus, in 1910 there was bipartisan (actually tri-partisan) support for a land tax and land tax would the primary source of revenue for the Commonwealth up till 1954. If Australia had the tax system we had back in the 1910s (when Australia was one of the richest countries in the world) we’d be the most competitive country in terms of our tax regime.

      (2)The Commonwealth has little interest in efficient *direct* taxes -land tax, of course, is very efficient (ie no deadweight loss), and direct as you get. The Feds prefer indirect taxes – 1300 indirect taxes over one big land tax bill might be easier to swallow. Because land tax is efficient it makes sense that it should be set nationally; while inefficient taxes like income taxes ought to be left to the states so they can compete with themselves to keep bad taxes as low and streamlined as possible. But that would mean a smaller bureaucracy and ticking off all those who have invested in property;

      3) it goes without saying land tax is good for country people, given low land values in these regions. A year of drought means the land is worthless, hence a small land tax. Currently country people pay for all sort of indirect taxes (petrol and transportation, GST etc etc). Thus, the tax falls heaviest on city centres with state of the art infrastructure services, not the country.

      4) there is a vast literature showing land tax reduces urban sprawl

      [*] Samuel Griffith, of course, introduced land tax in QLD; Joseph Hector McNeil Carruthers described it his in memoirs are one of the best economics systems devised when he introduced it.

  19. Absolutely in favour of a LVT. I think most opposition to a LVT is genuine misunderstanding, although there will always be those who see everything with myopic self-interest.

    For more articles on LVT I suggest folk check out http://blog.lvrg.org.au/

  20. sydboy007MEMBER

    makes economic sense, so wont be done by either of the major parties.

    It will probably take a crisis before the states even start to think about it.