Two of the biggest tax policy no-brainers – reforming superannuation concessions and replacing stamp duties with broad-based land values taxes – received near universal support from business and community leaders at last week’s AFR tax reform summit. From The AFR:
Nearly 90 per cent of delegates surveyed… said those two changes were of medium to high priority. A large majority also believed the community would rate changes to super tax breaks as a high priority…
Delegates were asked to rate a series of options as low, medium or high priority. They were also asked to indicate the level of priority given to each option by leaders and the broader community…
Interestingly, superannuation and land taxes were ranked as a higher priority than raising the GST (80% felt it was was of medium to high priority) or cutting company taxes (51%).
As has been spelled-out at least 100 times on this site, reforming superannuation concessions represents the low hanging fruit in tax reform, offering the double benefit of significantly raising Budget revenue whilst also improving the progressiveness of the tax system.
The politics are also favourable given superannuation reform would immediately wash-off the Abbottalyptic stain of “unfairness” that tainted the Coalition and offer a large dividend in Budget repair to the conservatives. The Greens are in favour and will back it in Senate. It would also outflank Labor, who are in favour of reform but have offered only a partial (‘wet lettuce’) fix.
Replacing stamp duties with land taxes is also a policy no-brainer, offering massive efficiency benefits. As shown in the Treasury’s recent tax discussion paper, the efficiency cost of stamp duties are extremely high, whereas land taxes actually offer positive welfare benefits:
Conveyancing stamp duties… have a high excess burden because they discourage the exchange of residential and business properties…
Modelling also suggests that broad-based land taxes, such as municipal rates, have a low economic cost (Chart 2.9). This is because land is immobile (unlike other capital) and cannot be moved or varied to avoid tax. The model applies this assumption to both domestic and foreign ownership of land. Land taxes paid by foreign and domestic landowners are only redistributed to the domestic households, providing a benefit to Australian households and generating a negative marginal excess burden for a broad-based land tax shown in the chart.
That said, in addition to these obvious policy no-brainers, Malcolm Turnbull and Scott Morrison would do well to consider reform of the tax system as a whole, with all tax revenues and tax expenditures examined in unison.
Tony Abbott destroyed the reform process with his ‘captain’s calls’ ruling-out of changes to superannuation, negative gearing, and the capital gains tax discount, which ensured that any package that the Coalition came up with would be half-baked and very likely inequitable as well.
But now that there’s a new sheriff and deputy in town, there’s the unique opportunity to re-boot the whole tax reform process.