A new paper argues that raising the GST is not the only answer to abolishing stamp duty, which is widely known as Australia’s most inefficient tax.
According to a working paper by independent think tank, Grattan Institute, a broad-based property levy could raise $7 billion a year and could fund the abolition of stamp duty.
Property Taxes, the second in a series of Grattan working papers on tackling Australia’s weakening fiscal position, finds that a levy of just $2 for every $1,000 of unimproved land value would raise $7 billion a year with an annual charge of $772 on the median-priced Sydney home, $560 on the median-priced Melbourne home, and lower average rates in other cities and the regions.
Grattan’s recent working paper, Fiscal challenges for Australia, found that state budgets are under pressure, with spending in health, education and other areas growing faster than GDP. State revenues are also threatened by the Commonwealth’s decision in last year’s budget to substantially reduce promised funding to the states for hospitals and schools.
“Attention is focussed right now on the worsening Commonwealth deficit, but states and territories have a looming funding gap, and have provided little insight into how they are going to fill it,” Grattan CEO John Daley said.
Property Taxes argues that a broad-based property levy calculated from the council rates base would be the best revenue measure to fill that gap.
“While property taxes can be unpopular because they are highly visible and hard to avoid, they are also efficient and fair, and don’t change incentives to work, save and invest,” Daley said.
“Unlike capital, property is immobile – it cannot shift offshore to avoid taxes. Over the last 25 years, taxes on property and property transactions have been the only significant ‘growth taxes’ for States, with revenues keeping pace with the economy.”
Unlike stamp duty however, Daley says the proposal is manageable for property landowners, and protects low-income people.
“Low-income retirees with high-value houses could defer paying the levy until their house is sold,” he said.
The working paper argues that the levy could also be used to fund the reduction and eventual abolition of stamp duties, among the most inefficient and inequitable state taxes.
According to Daley, shifting from stamp duty to a property levy would provide more stable revenues for states and add up to $9 billion in annual GDP.