Summary
To improve productivity Australia needs to shift taxes off work and enterprise and onto the economic rents from land, natural resources, and monopolies.
This principle should be at the heart of any economic reform agenda.
Income tax should be rebalanced to favour productive effort over unearned gains, beginning by scrapping CGT concessions.
States should be encouraged to:
- Modernise royalties, which could de-risk investment and raise another $14 billion per year – thus closing one-quarter of the gap between Australia and Norway in resource rent capture.1
- Charge for development rights, which could raise $8 billion per year – enough to abolish stamp duty for first home buyers while also funding a 50% increase in the social housing stock.2
The problem: our tax system penalises production and rewards speculation
Australian governments rely too heavily on taxes that discourage production, like labour income tax, GST, and payroll tax. Meanwhile, the economic rents from non-produced assets are largely untaxed.
For instance:
- One million workers on part-benefits face effective marginal tax rates of 75% or more – a severe penalty on work.
- Rising land values are taxed at less than 25%, if at all – with some people now earning more from their home than their job.3
- States impose payroll taxes that directly penalise job creation.
- Developers pay twice the rate of income tax on construction profits than on capital gains on undeveloped land, and in some states the council rates bill rises when land is developed.
The way we raise revenue is geared towards rewarding asset ownership and penalising productive activity. This is not only economically irrational, but morally wrong: it entrenches poverty while funnelling wealth to those who control our land and natural resources – the birthright of all.
The principle: shift taxes off work and enterprise, and onto economic rents
The overarching direction of reform should be to tax economic rents and untax productive activity. This principle can be applied across many areas including company tax, property tax, resource tax, and more.4
This includes the capture of rising land values. Rezoning, infrastructure, population growth and gains in productivity all increase land values without any effort by the owner – uplift that should be shared with the community that created it, by way of value capture policies and taxes on unearned gains.
CGT on real estate is one such tax. Because capital improvements are in the cost base, and buildings depreciate over time, CGT on property falls largely on land value growth – i.e. pure economic rent. There is no justification for taxing this at the same rate as labour income, let alone concessionally, as we do.
All taxes are ultimately borne by labour, capital or land and resources. Labour and capital respond to tax – land and resources do not.
Meaningful tax reform for productivity and growth therefore calls for rebalancing the tax mix toward land and resources, not just tinkering within the current structure.
The potential rewards are huge. Even just levelling up state taxes on land to the benchmark set by the ACT could raise an extra $27 billion in revenue per year – enough to halve all welfare withdrawal rates, which would deliver an effective tax cut of 20-30 cents in the dollar to over a million workers.5
Modernising royalties
Australia’s natural resources should deliver fairer returns to the owners – the public. We estimate that resource-rich states forgo $66 billion per annum in resource rents compared to best-in-class Norway. This is more than total state revenue from payroll tax and stamp duty combined.
Replacing fixed-rate royalties with royalties that move with market prices, as Queensland has done, could raise another $14 billion each year, while sharing some price risk, like under a resource rent tax.6
Pricing development rights
The right to develop land effectively resides with the community until granted via a planning permit. Instead of selling these rights at a fair price, however, most states give them away. This giveaway encourages land speculation, and acts as a honeypot for rent-seeking and corruption.
Our latest research values this giveaway at $11 billion per annum. Pricing these rights at 75% of land value uplift instead, as in the ACT, could generate $8 billion per year – enough to abolish stamp duty for first home buyers and fund an additional 220,000 social housing dwellings (a 50% increase in the stock).7
Tax reform: a lever for housing affordability
Economic productivity is about how well we use labour and capital on land, and productive land use is undermined by taxes which favour holding land for future gain rather putting it to use in the present.
This matters for housing affordability. Developers only build when construction is seen as more profitable than landbanking. This mean that taxes which privilege asset gains over yield slow down new supply.8
Ending CGT concessions, pricing development rights, and taxing land (rather than buildings) would see more land developed into productive use, including as housing.
About Prosper
Prosper Australia is an economic research organisation founded in the Georgist tradition of political philosophy. Our work centres on the monopolistic nature of land and how it shapes our economy and society. Our vision is a just and equitable society, created by ensuring everyone who benefits from our land, natural resources and natural monopolies pays a fair rent for their use.
Footnotes:
- Prosper Australia (2024). Rent-controlled royalties. ↩︎
- Prosper Australia (2025). Charging for development rights (forthcoming) ↩︎
- Prosper Australia (2024). Buying better income taxes with better land taxes. ↩︎
- Prosper Australia (2024). A tax shift for our future. ↩︎
- Prosper Australia (2024). Buying better income taxes with better land taxes. ↩︎
- Prosper Australia (2024). Rent-controlled royalties. ↩︎
- Prosper Australia (2025). Charging for development rights (forthcoming) ↩︎
- Prosper Australia (2024). Speculative vacancies 11. ↩︎
