Cameron Kushner of CoreLogic has offered an interesting analysis of property tax bases in Taxation Revenue From Property Continues to Climb.
Tax bases reveal more about a country’s future prospects than Treasury forecasts and economist sooth-saying.
Where and how it taxes is the single most important tool government has to foster national prosperity. It is a major influence on household and business economic behavior.
Over time, the composition of property taxes has changed markedly.
Municipal rates for local services match incomes and community expectations. Stamp Duty has simply flailed around, driven by changing transaction volumes and rising property prices. Land tax, which should track the market price of land, rising in times of excess like now and falling when land prices go down, appears de-linked from market prices and fails to display its profound virtue as an automatic stabilizer.
Major sources of property taxation revenue over time
State and local governments collected $49.6 billion in property taxes nationwide. The ABS (5204.061) says the value of Australia’s land at June 2016 was $5,105 billion, so the overall burden of property taxes was 0.89 per cent.
Imagine an Australia with wage or capital taxes as low as that. Economic activity would go berserk.
Total value of property taxation revenue to state and local governments
The lion’s share of property taxes is in Stamp Duty. As Kushner helpfully points out, it is a highly unreliable revenue source. This is not its only fault.
Value of stamp duty on conveyances tax revenue and % of total property tax revenue
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. 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 land holders while it is spent entirely on domestic households. I call that a beautiful tax.
Stamp Duty is not a complete washout. Sydney and Melbourne are now in the grip of a land fever not seen since 1890. Taxing transactions under these circumstances means there is a modest civic benefit in the speculative frenzy, as the state breakdown of Stamp Duty receipts shows.
Value of stamp duty on conveyances tax revenue across the major states
Kushner comes to the inescapable conclusion: the states should replace Stamp Duties with a broad-based nil-exemption land tax.
The ACT government is already deep into this reform, with real and measurable benefits. The doom-sayers claim any government that tries to tax land will be destroyed. The re-election of the Barr government proved this fear-mongering wrong.
A healthy and dynamic Australia is the sum of all our efforts. Advantaging property investment through low property taxes makes investors focus to rent-seeking. Better to motivate entrepreneurs to create new jobs and grow the economy. Or, heaven forbid, let labour keep more of their earnings and turbocharge productivity.