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The Greens have a new housing policy out. They begin with the high principle that all should have access to land then veer off with emotion at the tax rorts available to the wealthy.

Everyone Needs A Home calls for an end to negative gearing, the Capital Gains Tax discount and proposes exchanging state-based Stamp Duty for State Land Tax.

There. Three solid policy planks to return residential property ownership to citizens and end it being a plaything of debt-happy speculators and the rentier class. The Greens’ anger is understandable: these parasites overwhelmingly buy modest houses in established suburbs, displacing first home buying families to poorly serviced dwellings on the outskirts, to inappropriate flats or to renting.

Yet two of these initiatives are aimed on one economic flaw: the tax treatment of capital gains.

Negative gearing is a way to transform taxable labour income into concessionally taxed capital gains – hopefully to be realised in an advantageous tax year later in the holder’s life cycle. If capital gains were taxed the same as labour income, the allure of negative gearing would vanish in an instant.

A ‘home’ is made of two parts: the building and the land. Structures depreciate in value over their useable lifetime; the land abides forever. Capital gains are made solely in land price appreciation. Yes, a structure can be renovated or repurposed with fresh investment, but this investment adds to the capital base. Land needs no such attention.

The third proposal, to exchange Stamp Duty for State Land Tax has great merit and the Greens’ initiative here is to be applauded.

Stamp Duty is a dreadful tax and a real barrier to transactions, trapping people in and out of housing. Removing it would add an estimated $85 billion to the economy, or $91 per month per household – money that is currently wasted in deadweight losses that reduce the welfare of all.

In Prosper’s submission to South Austraila’s 2015 tax review we said the removal of Stamp Duty will see:

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

Rather than wait until gains are realised on sale, land tax falls upon land holding. While many small holders would be anxious over the possibility of a ‘big new tax’, land tax would fall particularly on the high value land occupied by the top 10 per cent of households by income – who the Greens single out in their policy paper. The Greens fear political repercussions from exactly this group, hence the ‘grandfathering’ of all current landholders – significantly delaying and weakening the benefits of land tax would bring.

The transition arrangement proposed is derived from the McKell Institute’s suggestion of a federal loan to bridge the revenue shortfall in early years. A better approach would be to tax all land immediately, granting offsets for stamp duty paid against a theoretical land tax from date of purchase. The elderly could be protected from harm by deferring land tax until death or sale as currently happens with municipal rates.

Prosper welcomes the Greens’ policy initiative in this area. However, we warn that the state land tax laws vary from weak to very poor and also need reform.