WA shows tax reform leadership. Well, I hope so.

 

REIWA President David Airey - sold on land tax

REIWA President David Airey – sold on land tax

WA Treasurer Mike Nathan has heard the call from REIWA President David Airey to end Stamp Duty and fund this by removing exemptions from State Land Tax, according to today’s West Australian newspaper.

I warmly welcomed Mr Airey’s comments yesterday because they rose above the traditional selfish tax-shifting nonsense industry leaders usually offer.  The WA government is keen too.

“Treasurer Mike Nahan will consider alternatives to stamp duty after conceding it was one of the nation’s least efficient taxes.

“The real estate sector welcomed the comment yesterday as the most promising indication yet of a change to the contentious tax, which costs buyers $20,000 on a median $545,000 home.

David Airey’s righteous anger and calls for major change are well placed.  KPMG Econtech estimated for the Henry tax review the marginal excess burden of conveyancing stamp duties at 34 per cent and average excess burden at 31 per cent.  So, for the average $20,000 raised, a further $6,200 of wealth is scattered to the winds and lost forever.

The alternative on offer, a flat rate, nil exemption and nil threshold State Land Tax has a deadweight cost of zero. Treasurer Nahan understands this.

“The Government recognises that stamp duty on property transactions is one of the least efficient taxes in the country and is keen to actively engage in the Commonwealth Government’s White Paper processes on national tax reform and reform of the Federation.”

“(This includes) looking at options to reform State taxes and provide the States with more sustainable and efficient sources of revenue.”

State governments have traditionally been reluctant to adjust stamp duty because it is a major source of income.

But stamp duty collections have been weak in the past year, with the housing market delivering lower-than-expected revenue.

The embarrassing weakness of stamp duty revenue makes it an unreliable base for government activity, alongside its deadweight cost. It cannot even claim to be an automatic stabilizer that moderates excesses in economic activity.

The WA Economic Regulation Authority is among those advocating sweeping reforms.

It called recently on the State to broaden the base and lower the rate of residential stamp duty and land tax.

Mr Nahan recently met the Real Estate Institute of WA over its proposal to abolish stamp duty in favour of a broad property tax, but it is understood the Government has not investigated a specific proposal.

REIWA president David Airey welcomed Dr Nahan’s comments, claiming it was the most promising sign of change. He said the tax was prohibitively high for some potential buyers and led to market stagnation.

“A broad property tax review is long overdue and must be considered, given the introduction of GST should have led to the abolition of stamp duty and other State taxes,” he said.

Politicians talking about waste are usually speaking in code about reducing government services.  Voters must demand they address this other, giant waste – the deadweight cost of bad tax bases.  In all, they consume around six per cent of the country’s GDP each and every year. With zero-cost taxes, on land and land-like bases, we would be nearly $100 billion a year better off, recurring, recurring, recurring.

2 Comments

  1. David Collyer24-04-2014

    LAND TAX FOR ALL; SUPPORT FOR DAVID AIREY’S LETTER
    The Letters Editor, The West Australian

    David Airey’s ‘land tax for all’ letter (22/4) is a correct important contribution to the debate about home and commercial site affordability, and helping the State to budgetary sanity, evening out the revenue.
    And, as he argues persuasively, stamp duty on land and other real estate transfers ought to be phased out.
    Of course, stamp duty on payments including insurance renewals ought to be abolished at once.
    Payroll tax is another jackass tax, on people doing something for their own and the common good, that is overdue for abolition, or even refunds to employers.
    I believe that State land tax and Local Government rates, to a total of about 10 per cent, ought to be levied on the unimproved capital value of all land, both freehold and leasehold.
    Such site value taxation would leave improvements like houses, flats, factories and shops untaxed.
    But it would put a burden on the 20,000 blocks in Perth that are not on the market, being held back in the hope of future capital gains, and somehow not being unduly affected by the capital gains tax. Site value taxation would stop the upward land price surges, and help to iron out the booms and busts in real estate.
    As David Airey wrote, thinking like this was explained in the 2010 Henry tax review.
    First homebuyers and people starting businesses would notice that land prices would stop soaring. The abolition of stamp duty would free up people downsizing, or moving to be nearer their work or business.
    And those who enlarged or improved their buildings or dug a farm dam would not be penalised for their enterprise.

    John C. Massam http://www.johnm.multiline.com.au

  2. AlanC26-04-2014

    Not that surprised, why not jump from a tax that may fall (dramatically in the future) for one that won’t (at least not as much). If the tax swap is revenue neutral (sound good) then the WA government can lock in the gains it got from the housing boom (after the boom has finished).

    AlanC

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