photo credit: itmpa

Last week Treasury made public its Red Book – the economic advice it gives to the incoming government.

In it, Treasury lays out a big, bold reform agenda.  On housing, the Red Book is scathing:

“Access to adequate housing affects all Australians and is integral to a decent life. It is part of what enables full participation in society.  However, the ability of many Australians to purchase or rent affordable housing has fallen over the past decade, and housing supply and allocation suffer from market inefficiencies and distortions.”

So, let me paraphrase: Treasury says many Australians are denied a decent life and full participation in society. That is clear.

It fingers Stamp Duty for abolition. Never mind Stamp Duty is a state tax and these are the feds talking. Never mind Stamp Duty is beloved by state governments for the giant licks of revenue that pour in when markets boom.

Abolish it.

Que Bono? Who benefits?

Removing Stamp Duty on housing helps some people a lot.  First homebuyers wouldn’t have to pay a lump sum tax just when they are desperately scratching money together for the largest purchase in their life.  Homeowners could move to take better jobs elsewhere more easily, improving job matches and productivity. Parents could shift as their families grow and shrink. Divorce would become less fraught, less bitter.

The government’s conservative opponents will argue removing Stamp Duty merely inflates house prices by exactly the tax removed. They would have a point, except Treasury also wants the principal residence exemption from Land Tax removed.

Land Tax would replace the revenue lost from a vile and distorting capital charge with an annual payment that rises and falls alongside the property market – a valuable automatic stabilizer.

Replacing a bad tax with a good one is a win-win.  It increases the velocity of the housing market, making change cheaper and easier.

If this helped only one household in a hundred each year, it would add substantially to national productivity.  But the change will probably help one household in five shift up, shift down or move around – every year.

I say, this change could usher in an economic Golden Age.

This valuable reform is not about giving government more money to spend.  It is about reengineering the tax system to stop waste and distortion.

Treasury understands the benefits of taxing economic rent.  They are well placed to convince the Gillard-Swan government to drag the state governments into the twenty-first century.

The push to replace inefficient duties with a fair and equitable Land Tax has been around for over a hundred years. Perhaps this time we can do it.