As we emerge from the global pandemic,
economists are looking for novel ways to stimulate the economy. According to experts, swapping stamp duty for land tax is a powerful way to make the taxation model more fair and effective. Not only would it be a more efficient financial measure, it could also have a positive impact on home ownership rates among young Australians and current renters. While every form of taxation hurts the economy in some way, pivoting away from stamp duty towards land tax and property tax could have a lasting positive impact for young and old Australians.
Swapping stamp duty for land tax is not as
novel as it sounds, with the ACT government already implementing such a plan
and the NSW government planning to do the same via a novel opt-in arrangement.
The ACT already has Australia’s most efficient tax base, with every dollar of
revenue raised costing the economy just 21.9 cents. In contrast, NSW has the
least efficient system, with every dollar of revenue raised costing the economy
29.7 cents. Part of this discrepancy is due to the replacement of stamp duty with
broad-based property taxes.
Rather than being set in stone, state tax
measures need to change over time to meet the economic circumstances of the
times. Taxes on transactions, including stamp duties on real estate, are
recognised as particularly inefficient. In fact, stamp duty has become less and
less efficient over the past five years, with low interest rates and booming
property prices in Sydney and Melbourne inflating stamp duties and giving them
a growing share of the tax base. The typical stamp duty bill is now above
$40,000 in Sydney and Melbourne, with questions once again being asked about
Not only is stamp duty inefficient, but
changes would also make housing more affordable and fair for many Australians.
Swapping stamp duty for land tax is likely to reduce the average purchase price
for homes, along with increasing the total number of transactions and improving
the rate of home ownership. Young adults, renters, and anyone struggling to
save for a deposit would be likely to benefit. While current homeowners would
generally be worse off, this change could increase house values for sellers and
landlords. In addition, some families pay more tax than others simply because
they move house more often, which is fundamentally unfair.
In the ACT, there has been a gradual
transition away from stamp duty for all purchases, with this tax completely
waived for many residential land and off-the-plan apartment purchases. NSW is
making a similar move, with home buyers given a choice to pay either stamp duty
and land tax or a new annual property tax. According to calculations by the
Conversation, Australians would be up to $17 billion a year better off if the
entire country made the same decision. Instead of inefficient stamp duty, an
annual flat tax of $5-$7 for every $1,000 of unimproved land value would be
more than enough to void property stamp duties. As the ACT and NSW models
continue to see success, nationwide adoption of a new system looks more likely