The debate over tax policy in Australia has reached fairly mediocre levels. The best the Federal Government can muster is a company tax cut, which they intend to by stealth replace with income tax via bracket creep.
Meanwhile the natural bounty of land is ever increasing in price via debt leveraging and population growth, worsening housing affordability and financial stability. Infrastructure continues to lag, with publicly created value being pocketed in private hands. Worst of all, reliance on Stamp Duties has reached all time highs, increasing inequality and putting unsustainable state budgets at risk in the event of a property downturn.
Prosper Australia’s 2018-19 Federal PreBudget submission provides the Federal Government with five key policy priorities to ensure Australia’s economy can remain strong into the future.
Facilitate the shift from Stamp Duty to Land Tax
The Federal Government should establish a grants fund (of similar nature to the defunct Asset Recycling fund) to provide financial support and incentives to State Governments’ transitioning from stamp duties to broad-based land value tax. This builds upon the Government’s City Deals policy framework.
The Federal Government has the capacity to facilitate the immediate abolition of land transfer duties (stamp duties) and associated deadweight losses they impose on the Australian economy. With sufficient bridging finance and grant incentives, State Governments could immediately abolish stamp duties and impose a Stamp Duty Replacement Tax (SDRT) on all future purchases of property
The Federal Government can incentivise sub-national governments to adopt LVC, within a City Deals policy framework. This accords with the desire to use City Deals to leverage government investment toward broader economic reform.
Land Value Capture (LVC) taps increases in locational value resulting from public investment and service provision. Taxing locational uplift accords with the ‘beneficiary pays principle’ and is an equitable and economically efficient approach to financing public infrastructure.
The Federal Government should ensure that Value Capture mechanisms are incorporated into its infrastructure projects, and incentivise states to adopt such mechanisms through City Deals and a grants fund.
Capital Gains Tax Discount and Negative Gearing for real estate and land
The Capital Gains Tax (CGT) discount and negative gearing tax expenditures have a distortionary impact in Australia’s economy. These tax incentives are facilitating unsustainable increases in land price inflation and subsequently household debt.
The best tool available to the Federal Government to decelerate land price inflation is the tax treatment of land.
The Federal Government should restore the previous regime of taxing inflation-adjusted capital gains at full marginal tax rates for real estate. Abolishing the CGT discount is a fair and economically efficient reform.
Further, we urge the Government to adopt the 2014 Financial System Inquiry recommendation and reinstate the ban on Self-Managed Super Fund (SMSF) borrowing.
Company Tax shift to a more comprehensive Resource Rents Tax Regime
Company tax cuts should be offset by shifting to a much more stringent and comprehensive Resource Rent Taxation Regime. This should be based on international best practice, as in Norway’s scheme.
After accounting for an increase in income taxes, or a reduction in services, cuts to company taxes as currently proposed will likely leave wage earners worse off. Recipients of economic rent (resource extractors and landowners) will likely be better off.
Adequate resourcing of the ABS and open public data
Over the course of the last decade, governments have repeatedly cut funding to the ABS. These cuts are having a significant impact on the delivery, integrity, and breadth of the ABS data. Business, policy makers and research organisations such as Prosper Australia are inherently reliant on high quality, trustworthy, and open public data.
Prosper Australia is disturbed by proposed changes to ABS reporting on housing finance, international trade data, and vehicle sales. We do not support a reduction in the Bureau’s human resources.
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A more inclusive, dynamic and sustainable tax system is possible. The Federal Government merely needs to seize the opportunity.
