Will Mike Baird seize the first-mover advantage for NSW – and drink all of the Premiers’ Elixir?

first_prize

A prize awaits the first state Premier with the political capital and farsightedness to exchange Stamp Duty for State Land Tax.

The move would be a magnet for economic activity. As economists repeat ad nauseum, it is all on the margin. Fresh investment – the Premiers’ Elixir – goes where it is most welcome and the state with the best tax laws wins.

The Australian today reports NSW Finance Minister Dominic Perrottet declaring there is “no doubt” that moving from stamp duties towards broad-based land taxes would encourage property transfers, relieving chronic pressures on the market:

“On the tax side of things we should be open to reform,” he said. “If you reduce stamp duty and had a broad-based land tax we would encourage the transfer of property, there’s no doubt about that.
“You have retirees living in these five-bedroom homes by themselves while there are people with three children trying to buy into the property market”…
Stamp duty remains a major disincentive to property turnover. The stamp duty on the purchase of a $1m property is about $40,500…

Leith van Onselen has an excellent piece up on Macrobusiness explaining the residential benefits.

There are big advantages for commerce too: Stamp duty discourages firms from moving closer to their customers, from expanding and contracting efficiently, and makes it difficult to liquidate key capital assets when necessary. The costs of firm immobility include longer travel times for employees and customers with city-wide congestion impacts.

Business values the freedom to change with their circumstances. This confidence unlocks capital for investment, which would head straight into a reforming Premier Baird’s arms.
Stamp Duty inhibits property transactions. End it and NSW will see:

  • More and better construction
  • Lower rents
  • Better matching of families and housing, and of business and premises
  • A greater propensity to buy (on ease of exit)
  • Less traffic congestion
  • A deeper, more active land market

The re-election of the Barr ALP government in ACT, four years into their 20 year program to wind off Stamp Duty funded by increased land tax, proves reform AND holding onto government are possible. The ACT Liberals had seized on landholders’ horror of writing a cheque to the taxman and thought they had a winner. Their disappointment proves worthwhile reform can win IF it is soundly based and clearly explained.

The very tangible economic benefits of the ACT reforms are examined by Cameron Murray here.

The ACT is a government town with limited business activity. It cannot put on the turn of speed a first-mover state would enjoy. But it has proved the politics is possible.

The federal Treasury and all state Treasuries have been urging this reform to parliamentarians for decades. Meanwhile, Australia has been feverishly diverting savings to the empty dreams of rent-seeking and capital gains from land price inflation. This has starved our industrial base of capital – leaving us with serious under-employment and staggering import costs. Tax reform can change our foolish behavior.

Nothing is more important to shaping a state’s fortunes than its government. Ending Stamp Duty for State Land Tax will turbocharge both economic efficiency and the quality of our lives. I’d like to see that.

1 Comment

  1. david singer26-10-2016

    I met Mike Baird in August 2013 when he was Treasurer and presented a plan to him to eliminate land tax and stamp duties and replace them with a single Property Owners State Tax which would be revenue neutral.

    It is quite revolutionary because it uses council rates paid annually on properties as a base rather than land values which have become entirely corrupted in NSW – as the Ombudsman’s Inquiry in 2005 established that I also was instrumental in setting up.
    https://www.ombo.nsw.gov.au/__data/assets/pdf_file/0020/3377/Land-Valuations-October-2005.pdf

    My proposal requires modelling but Mr Baird would not agree to get Treasury to undertake the work required even though I offered my services free of charge.

    The proposal was based on my submission to the Henry Inquiry and to the earlier Nile Inquiry and a few other inquiries.

    http://taxreview.treasury.gov.au/content/submissions/pre_14_november_2008/David_Singer.pdf

    If Mr Baird wants to drink all the Premiers’ Elixir he better dig out my submission to him and get cracking on it.

    He will have egg on his face if someone else beats him to the punch – sorry elixir

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