Amid recent GST distribution cuts of $400m p.a. (about 12% of revenue) and a flagging property market, the Northern Territory Government is facing severe fiscal challenges. The NT is the most stamp duty reliant government in the federation, and has been hard hit an inevitable correction in its housing market. Annual dwelling (predominantly land) prices have dropped about 10% and transaction volumes are down by 15%. With revenue drying up, the Territory Government is taking action. Labour Treasurer Nicole Manison has announced a radical tax review and discussion paper, which may be the biggest shake up in the Territory’s history.

Everything is on the table: vehicle rego, bank levies, royalties, and an annual tax on unimproved land values.

The NT is currently the only region in the Australia with no land or property taxes (including rates). The NT has the highest proportion of tenants. Of 60891 households, only 29158 are owner-occupiers (47.9%), while 29903 households rent (49.1%). The balance being alternative tenure types.

These circumstances also present a unique opportunity for the Territory. For example, with such a high-proportion of renters, the number of households who would stand to gain from a broad based land value tax exceeds the number of owner-occupiers who would have to pay it. If well handled, recurrent land taxation could be a popular initiative. As is to be expected, the usual suspects have been quick to condemn the initiative:

Property Council NT executive director Ruth Palmer argued that land tax would “threaten [the territory’s] competitive advantage” and that it would “… hurt investment and job creation”. This is in conflict with their peak body, the Property Council of Australia, who supports swapping stamp duties for a broad based Land Tax (although argues it is politically unworkable).

Knight Frank senior director Peter McVann was also sceptical, but did not oppose the land tax so long as it is broad based.

Liberal Opposition Leader Garry Higgins also came out against the land tax, claiming, “It’s not incentivising people to invest”. He did however understand its potential for improving housing affordability, “My gut reaction would be it would have a downward effect on the price of property”.

The Northern Territory has the chance to follow the ACT’s lead and become the second territory government to phase out stamp duties in favour of a land value tax. This is far better than the alternatives, such as an employment destroying payroll tax, regressive rego or inefficient bank levy.

Moving from stamp duties to a broader-based tax, like land value taxation, will ensure the Top End can continue to deliver public benefits as the property market comes back down to Earth. Currently, less than 3% of taxpayers are liable for stamp duty in any given year. This unequally burdens the up-sizers, and downsizers, and strongly discourages housing mobility. Replacing stamp duties with a broad based tax would be much more equitable.

Prosper Australia encourages all of our supporters to make their own submission.