The IMF has added its voice to the calls for Australia to reform how we tax ourselves to be more productive, fairer and better placed to manage the headwinds ahead.
Its annual consultation report with the Australian government says: “Stamp duties should be replaced by broader land taxes, which would strengthen incentives for efficient land use.”
Stamp Duty on conveyances is a vile tax. It traps families in and out of housing, limits labour mobility and mismatches households and dwellings.
Each and every year it costs us $84 billion and rising. This is money cast on the ground – completely wasted – that could be used to improve our lives and country through better services or tax cuts or both.
The AFR reported comments on the IMF report by RBA governor Philip Lowe on Friday to the House of Representatives economics committee:
‘‘The key to boosting the real income of households is lifting productivity. I encourage you to keep examining ways to do this,’’ Dr Lowe said.
‘‘The IMF, in its various reviews of Australia, talks about the tax system, the balance between income and consumption tax and, importantly, the way we tax land.’’
Dr Lowe said he believed the ‘‘first order’’ of priorities (to lift rent wages and productivity) should be, ‘‘the pricing and provision of infrastructure, the way we accumulate human capital, the incentives we have for innovation and the tax system’’.
‘‘In the absence of following those ideas, I think we’ll have OK but not really good productivity growth, and that means OK growth in real wages, not fantastic growth in real wages,’’ he said.
So, fantastic growth in real wages, real earnings is available – if we are willing to endure the disruption of reform. So far, our political leaders have judged the political cost as greater than the economic gain, thereby valuing their own skins above the $84 billion annual benefit available.
The pricing and provision of infrastructure is intimately linked to taxation reform. When we build or upgrade a road, hospital, library, public swimming pool – any civic improvement – the gain is embedded in the value of land under the households who benefit.
If we taxed the land rather than incomes, land price gains due to infrastructure improvements cycle back to consolidated revenue and are available again. Where government chooses projects that benefit favoured interests, THEY will pay more.
The IMF also recommends government capture some of the capital gains that accrue to owner-occupied residential real estate. I don’t share their enthusiasm as the value of this consumption asset is strongly affected by improvements and repairs, to be subtracted from gain calculations, even if worn out or ill-advised. Government refuses to tax gains on classic cars for the same reason.
Just tax the land – all land. Turn our entrepreneurial zeal to business, to growing the economy, from trading second-hand houses for lower and lower yields.
“The least bad tax is….on the unimproved value of land, the Henry George argument of many years ago.” – Milton Friedman