The Parliamentary Budget Office (PBO) has costed a theoretical proposal by The Greens to abolish property stamp duties and replace them with a broad-based land tax, finding a short-term cost to Budgets but a more neutral outcome over the longer-term. From The ABC:
Under the proposal put forward by the Greens, the Commonwealth would provide concessional loans to state and territory Governments to assist the transition.
The loans would hit the budget bottom line by $800 million, although states would rely on rising land tax revenue to repay the debt by 2030.
“States would also be required to cover the Commonwealth’s borrowing costs for the proposal, with interest charged annually at a rate equal to the Commonwealth’s cost of borrowing,” the costings said…
Grattan Institute fellow Brendan Coates said stamp duty accounted for $19 billion nationwide each year and any increase in land taxes would have to match that revenue.
“To do that you’re probably talking about a tax on unimproved land value of about $6 for each $1,000 of unimproved land value,” he said.
“Given the median house price in Melbourne is somewhere around $800,000 to $900,000, you’re talking about $2,700 for the average homeowner in Melbourne and in Sydney you would be looking a little north of $3,000″…
Federal Treasurer Scott Morrison would not comment on the proposal, saying the Government would not be drawn on budget speculation…
Labor’s treasury spokesman Andrew Leigh said the proposal had merit, but the Government needed to curb negative gearing and capital gains tax concessions.
“We know that when you look at the drag on the economy from stamp duty its one of the worst taxes Australia has,” he said.
“When you look at land tax it has one of the lowest burdens on the economy of any tax we have.
Switching stamp duties for a broad-based land tax makes impeccable sense.
The Australian Treasury has already shown that stamp duties on real estate are one of the least efficient taxes going around whereas land taxes are the most efficient source of tax available, actually creating positive welfare gains to the domestic population since non-resident home owners are also taxed (see below chart).
The Henry Tax review came to similar findings. As has the Productivity Commission. Even the Housing Industry Association’s Dr Harley Dale has previously called for the exchange of stamp duty for land tax.
Given that there is a productivity pay-off in switching-out the taxes – some of which would flow to federal government coffers via the broader tax system – it makes sense for the federal government to provide incentive payments to the states to facilitate reform.
Scott Morrison’s housing affordability speech last year pinned the blame for Australia’s housing affordability woes on supply not keeping-up with demand. But part of this problem relates to the mis-match between supply and demand created as older empty nesters occupy most of Australia’s family friendly homes, whereas younger growing families are forced to live in ill-suited units and apartments.
Abolishing stamp duties in favour of a broad-based land tax would obviously remove the penalties currently attached to relocating while incentivising households to move to more appropriate houses or employment. In turn, there are likely to be benefits to congestion and commuting times as the housing stock is utilised more efficiently.
If the federal government genuinely cares about boosting overall productivity and housing outcomes it should put replacing stamp duties with land taxes near the top of its agenda and provide financial incentives to the states to ensure that reform gets done.
In order to facilitate the transition, the government could give home buyers a credit for the stamp duty paid, and then deduct the theoretical land tax that would have applied since the home was purchased.
For example, if someone purchased a home in March 2011 and paid $30,000 in stamp duty, and their annual land tax bill would have been $3,000 per year had the new regime been in effect, then their credit would be $12,000, which can be applied against future year’s bills.