MHR Dan Tehan (Liberal, Wannon) had an op-ed in today’s Australian Financial Review, States dragging their heels on tax reform, criticising them for clinging to very bad taxes, notably Stamp Duty on property conveyancing.

“Home buyers across the country are still being slogged $16 billion each year in stamp duty. If you’re looking to take out insurance in Victoria on a car, or home and contents, you’re chipping in to the state’s $1 billion insurance tax revenue stream.

And

“The reason these inefficient taxes are still hanging around is simple – the states have lost their zeal to reform and keep looking to the federal government to fund their responsibilities.

“Stamp duty alone now provides 24 per cent of the states’ revenue.

Any pollie who can see the damage Stamp Duty does to national economic well-being deserves our full attention. Dan goes on:

“Not only is stamp duty a tax that many countries have abandoned but the impact of it is felt directly at the hip pocket. The burden of stamp duty in Melbourne on a median-priced house has increased from 2.6 per cent in 1988 to 5.1 per cent in 2011.

He roundly criticises the states for the free-carry they enjoy from the federal government collecting GST for them – and for carrying it’s political baggage.

Thank you, Dan Tehan. These are important issues. But if the states are to remove Stamp Duty, how will they fund their activities? Dan is plumping for a broadly-based GST at a higher rate – that is, without exactly connecting the end of Stamp Duty and a big new GST.

If we made this exchange, property prices would rise by the median 5.1 per cent Dan identifies, while purchasing power would fall by the increase in the GST. The consequences would be dreadful.

There is a better way, as Prosper suggested to the aborted federal tax review in February:

The ideal tool to moderate land bubbles and properly fund infrastructure already exists in the hands of state and territory governments: State Land Tax. Unfortunately, this tax has been so riddled with exemptions and concessional treatments it must be considered dormant. The states show no interest in, for example, removing conveyancing Stamp Duty or Payroll Tax – both very damaging tax bases – and funding this by also removing exemptions from SLT. They fear the political consequences.

We recommend the Abbott government introduce a nation-wide one per cent Federal Land Tax – fully rebatable on State Land Tax paid – to oblige the states and territories to migrate their revenue bases away from genuine economic injury. State governments could adjust their tax rules and keep every dollar the Federal Land Tax raises, to the great benefit of all Australians. The Commonwealth would be entitled to argue this intervention is for sound economic reasons and dissipate the political fallout.

Transitional arrangements would need to be considered. A logical solution is to credit all landowners with the amount of stamp duty paid and then deduct the hypothetical land tax they would have paid since the date of purchase. This would address much of the fairness question.

There, Dan, is the solution. It would thrust Australia into an economic Golden Age. That is what you want – isn’t it?