Peter Martin, Australia’s clearest economic writer, has turned his icy gaze to Stamp Duty.
This vile tax causes real harm to all of us and begs to be struck from the statute books.
Yes, it is a state tax. Yes, the feds can push reform along and add $85.5 billion to the economy.
“There’s no doubt about what’s the worst tax in Australia, and no doubt about the best bang-for-your-buck tax swap.
“The treasury set out the numbers in a discussion paper prepared for the tax review Malcolm Turnbull ditched. The worst of the taxes it examined was stamp duty. On the treasury’s estimate real estate stamp duty shrinks the economy by an astounding 72¢ for each dollar it collects.
“None of the other taxes it examined come close. The economic cost of company tax is around 50¢ for each dollar collected, the cost of income tax somewhere between 20¢ and 30¢, and the cost of the GST between 17¢ and 20¢.
“One tax, and only one, has an extraordinarily low economic cost. It’s land tax, sometimes levied as council rates. Its economic cost is so low it’s negative. The treasury’s calculations suggest every extra dollar it raises actually boosts the economy by 10¢.
“It means that a stamp duty for land tax swap could boost the economy by a massive 82¢ for each dollar swapped. There’s no bigger benefit imaginable from rejigging tax.
“People who move house frequently are whacked with much more stamp duty than people who tend to stay put. So they experiment with staying put, driving longer distances clogging up roads. They renovate rather than move, or buy bigger houses than they need in case they run out of room. Older Australians put off downsizing in order to put off stamp duty.
“In contrast, land tax doesn’t discourage anyone from doing anything, except from wasting land. It makes unoccupied properties and holiday homes more costly. It prods people into using land well, and into downsizing if it makes sense.
“So far only the Australian Capital Territory has taken the plunge and begun swapping stamp duty for land tax. It’s doing so slowly over 20 years so that people who have just bought properties aren’t hit by full stamp duty followed by full land tax.
Martin then explains The Greens’ proposal to end stamp duty on new purchases, replaced by a land tax thereafter. The Commonwealth could borrow the $47 billion in funds needed and lend it to the states – a bridging loan while land tax revenues caught up.
The Parliamentary Budget Office costed the proposal and found the loans and interest would be fully repaid by 2030 if the states imposed a land tax on new purchases at the following average rates:
New South Wales 0.69%
South Australia 0.58%
Western Australia 0.55%
Northern Territory 0.66%
The $47 billion loan would save the economy $33.8 billion in deadweight costs over the period, while land tax’s negative deadweight cost (a giant positive) would add $51.7 billion. Instead of going backward, we would be going forward. Together, this tax switch would add $85.5 billion to GDP.
“The Commonwealth would have bought the best economic boost a tax-switch can buy for a song.
Every unbiased tax review in living history has energetically recommended removing stamp duty and using land tax instead.
Source: McKell Institute
If the states reject the dangled carrot of a low-interest loan, Turnbull has another more pointed tool at hand: a federal land tax, as we had from 1910-1952.