Victoria thinks the unthinkable – land tax


The Andrews government is flying a kite today in The Age to gauge public opinion on removing conveyancing Stamp Duty and using State Land Tax instead.

This initiative deserves thunderous applause.

With many young Victorians now excluded from home ownership and renting instead of building asset wealth in their own homes, the government can see the political cost of leaving it alone exceeds the cost of change.

The federal Treasury’s tax manifesto, Australia’s Future Tax System is very clear about the costs of Stamp Duty:

“Conveyance stamp duty is highly inefficient and inequitable. It discourages transactions of commercial and residential property and, through this, its allocation to its most valuable use. Conveyance stamp duty can also discourage people from changing their place of residence as their personal circumstances change or discourage people from making lifestyle changes that involve a change in residence. It is also inequitable, as people who need to move more frequently bear more tax, irrespective of their income or wealth.

This matters. Federal Treasury modelling shows the marginal excess burden of Stamp Duty is about 70c. This means every dollar raised this way costs taxpayers around $1.70. State Land Tax, by comparison, has a positive excess burden. In fact, it would cost us around only 90c for every dollar raised – we actually make a profit!

It comes about because land tax is paid by both foreign and domestic landowners while it is spent entirely on domestic households – us!

In 2013-14, the Victorian government raised around $4 billion through conveyancing Stamp Duty. The economic cost imposed upon us was about $6.8 billion. Had the $4 billion been raised through State Land Tax, the economic cost would have been around $3.6 billion.

The difference, about $3.2 billion a year – or $533 a year per Victorian – would fall directly into taxpayers pockets if we used State Land Tax instead.

This is what I call tax reform! Real benefits for real people.

Very good modelling of the changes in the cost of purchasing properties in Melbourne from exchanging Stamp Duty for State Land Tax has been done by Gavin Wood et al at AHURI and is well worth reading.

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