NSW demands federal funds to abolish stamp duty

NSW Premier Dominic Perrottet has recommitted to abolishing stamp duty in favour of land taxes, but only if the federal government provides the state with transitional funding:

The Premier confirmed next week’s state budget would include announcements and proposed changes relating to housing affordability, but clarified that no agreement had been reached with the Commonwealth.

“The reality is state governments can’t do away with stamp duty without support from the federal government,” he said.

“This is a moment for the federal government and state governments to work together to unlock economic opportunity for people going forward.”

Mr Perrottet is due to meet with the Prime Minister on Friday.

Perrottet’s argument around federal government assistance is sound.

The federal government collects around 80% of the nation’s tax revenues, with the states and local government’s collecting the remainder via a narrow base of taxes, like stamp duties.

Given that the abolition of inefficient stamp duties in favour of land taxes would generate significant productivity benefits to the national economy (see next chart), and the federal government would monetise these benefit via an uplift in personal and income tax receipts, the federal government should encourage the reform process via incentive payments to the states. Doing so would enable the states to share in the revenue uplift that would arise from the resulting economy-wide productivity growth.

Stamp duties vs land taxes

There are big national productivity gains from shifting from stamp duties to a broad-based land tax.

This is how ‘cooperative federalism’ should work – the federal and state governments sharing in the fruits of reform.

Sadly, Treasurer Jim Chalmers suggests that he is not prepared to compensate states which go down NSW’s path:

Dr Chalmers raised the hopes of states in March by saying he was “prepared to lead a conversation” on swapping stamp duties for land taxes if Labor won the May election…

But on Monday, he almost ruled out compensating the states for property tax reform…

“These are ultimately matters for the states,” Dr Chalmers said. “We want to work with them to address the substantial challenges we all confront in the economy, and in our budgets.”

Without the federal government’s active participation in the reform process, important productivity-lifting reforms like shifting from stamp duties to land taxes will remain in the ‘too hard’ basket.

The federal Labor Government must provide financial incentives to the states to encourage them to transition to more efficient tax bases. Otherwise, meaningful tax reform will forever remain in the ‘too hard’ basket.

Treasurer Jim Chalmers spent a lot of time talking up productivity reform leading up to the election. Now he is talking the opposite. He’s clearly not up to the challenge.

Unconventional Economist

Comments

  1. Let it remain “too hard” for the moment. They won’t be getting any money from either source soon.

  2. dissonanceMEMBER

    Stamp duty reform always pops up as critical during property downturns but gets buried during property booms when states like NSW are raking in windfall revenue. Typical eastern state attitude of localise the gains and federalise the losses (ie take more from business, mining, energy friendly states and those states not relying on windfall SD taxes).

    Here’s an idea… do a Canberra and just bring in land tax replacing SD over time in a revenue neutral model. Simple maths and fair tax approach. Since when was it written in stone that old farts sitting on million dollar homes and multi-million dollar investment properties for 10-20 years should be able to live tax free for another 10-20 years while only current property buyers pay for state services and infrastructure??

    Simply looking for a hand out now the property cycle has turned…

    • Exactly. Does anyone think that this meathead intends to enact any meaningful reform?

    • The issue is the loss of GST funding which would flow from NSW giving up its current tax revenue. It’s a ridiculous outcome and very easily fixed by the Feds.

  3. This is all politics. Its a non-issue if cashflow and balance sheet is the only concerns
    Simply recognise the PV of the future land tax on the balance sheet and NSW treasury issues matching annuities to super funds paid by land tax revenues. Problem solved

  4. Ronin8317MEMBER

    While the change is welcomed, they need to make it so investors must pay BOTH stamp duty and land tax. Otherwise the market will be tilted toward investors because land tax is tax deductible, but for home owners it is not.

    • rob barrattMEMBER

      Also of course you have to consider that thousands of new (and not so new) home owners (as opposed to investors) are paying off stamp duty as part of their mortgage. Are they supposed to now pay that plus a land tax?

      • Existing holders are grandfathered. So no, they won’t have to pay two lots of tax.

  5. NSW Labor is also against it and are already running a misleading scare campaign.
    As always, when push comes to shove, politicians play politics first and stuff everything else.

  6. Gosh you are all so naive. You reailise that if the federal government effectively subsidises property transactions, it efectively lowers property taxes.

    Productivity arguments aside, the tax reduction would end uo being capitalised into higher prices. It would be a wealth transfer from federal tax payers to existing asset owners.

    Not surprising from this site. The bloggers are hating the police rate normalisation too. That says everything.