Vic land tax: Politics I Economics III, Politics wins
Victorian Treasurer Tim Pallas will deliver the state’s 2016 Budget in a few minutes. Surpluses totalling $9.2 million over the next four years are pre-announced, as is the foreign property buyers’ Stamp Duty surcharge of 7 per cent and the State Land Tax surcharge of 1.5 per cent.
The big, glittering reform – ending Stamp Duty for State Land Tax – is off the table.
Pallas, playing politics, told the AFR he regarded the federal government as an unreliable dance partner after a series of tax reform thought bubbles from the Prime Minister vaporised under public scrutiny.
The AFR lined up Bryce Prosser of VCCI to advocate the property tax reform that would liberate citizens from bad taxes and the rentier mind-set: “It’s a more efficient way and enables employers the same benefits as home owners.”
Next up, Professor Ross Garnaut saying land tax, especially, can generate large efficiency and revenue gains “with much less distortion than almost any other tax.”
And Professor John Freebairn asserting comprehensive land tax using the existing municipal rate base was a “no brainer”, with a “deadweight cost of zero”.
I call that Politics I, Economics III. Politics wins.
Why? The Andrews government does not want the undying hatred of property investors swept into convulsions by a cheap and easy scare campaign. It is leery of being blamed for the collapse of the land bubble. Most of all, it fears the wrath of middle Australia, who would have to write a cheque to government for the privilege of owning land.
Never mind we would enjoy an immediate and enduring boost to living standards of around $24 billion a year if all states and territories gave up Stamp Duty for land tax.
This can be fixed with some deft footwork: the commonwealth imposes a 1 per cent nil exemption Federal Land Tax rebatable against any State Land Tax paid. The states can match the federal take or miss out.