Leaders forum: Why stamp duty is stifling growth
If the next time you filled up your car you had the option to choose a more efficient fuel, one that cost the same but gave you an extra 50km down the road, what would you do? It would be a no-brainer. You’d go with the fuel that cost the same but gave you more.
It’s exactly this type of choice that our governments face today as they meet to continue talks on national tax reform.
By switching from old, inefficient taxes to better ones they can collect the same amount of revenue but get higher economic growth. That means more jobs, greater revenues to fund critical public services and improvements to everyone’s economic welfare.
Growing the economy must be the fundamental objective of tax reform. The proposal the Property Council has put forward targets one of the country’s most harmful taxes — stamp duty — and models the economic benefits of replacing it with a more efficient revenue source — the GST. The results are compelling.
Deloitte Access Economics calculated that abolishing stamp duty on property and replacing it with GST revenue would add $3.3 billion to the economy.
That’s the equivalent of doubling the size of the entire dairy industry. A huge economic dividend simply from changing a bad tax for a better one.
And households would benefit, too. The tax switch would increase consumption — effectively household purchasing power — by $9.7bn, that’s after taking into account the GST impact. In fact, households would on average be almost $20 a week better off.
That’s how bad stamp duty is. That’s how much it hurts families and holds back the economy.
Treasury says stamp duty is the tax with the highest cost to economic growth and living standards. It’s a barrier to home ownership, and a deadweight standing in the way of economic growth.
Even worse, this damaging tax has spiralled out of control. Australia’s states and territories are collectively on track to reap a record $20bn in stamp duty on property this financial year alone — a threefold increase in 14 years.
The impact on homebuyers is even more acute, with average stamp duty costs rising by up to 795 per cent in the past two decades.
By increasing their reliance on a harmful tax that stymies the creation of new jobs and investment, state and territory governments are blighting their growth potential even further.
The South Australian government stands out in this debate for being the first to start phasing out stamp duty on commercial property. The need to create jobs and economic growth is particularly acute in this state as its economy undergoes substantial transition.
It is illuminating and encouraging that it has recognised that abolishing stamp duty, even in part, is key to accelerating the growth they are seeking.
Other jurisdictions should take note.
The other thing we know about stamp duty is it is one of the most volatile revenue streams around.
Property is currently Australia’s biggest industry. It generates over 1.1 million jobs and is the largest contributor to GDP.
The contribution property-specific taxes make to Australia’s total tax take is almost double the OECD average.
As Australia’s economy continues to transition, it’s the property industry that — with the right reforms — can help take up the slack and deliver the economic growth the nation needs.
Getting rid of taxes that harm the economy benefits everyone. Let’s hope our nation’s leaders agree.
First published in The Australian, 11 Dec 2015