Tax reform would help city grow
If the past few days are any indication, it looks like the Turnbull Government is ready to ramp up a discussion about tax reform. In response we have already seen the State Government make it clear that they don’t yet see the case for reform if it includes changes to the GST.
Clearly the State Government is keen to ensure that Santa isn’t the only person delivering goodies over the next few months. They want the Commonwealth to bring more to the table before Queensland makes any political commitment to national tax reform.
We all readily see the politics of tax reform through the lens of the media. The fact is that tax reform is complicated, political and fraught. Unfortunately this makes it easy to walk away from. But it is not only worth doing, it is vitally important.
So let’s explore why. But to get to the real impact, let’s take the ‘national’ and even the ‘state’ out of the tax reform debate, and put the focus squarely on what it might mean locally. Let’s ask the question - what could tax reform really mean for growing cities like Townsville?
Townsville is universally acknowledged as a city with enormous potential. At the heart of the city’s future economic growth will be the property industry, which currently accounts for 10.6% of all full time jobs within Townsville and pays over $485 million in local wages. In a Property Council forum held in Townsville last month, local representatives from all three levels of Government identified the property industry as key to the region’s economic future.
But the current tax system thwarts the property industry’s growth, and as a result, Townsville’s growth and prosperity. Let’s look at stamp duty as a case in point. It is widely acknowledged as the most inefficient and distortionary tax in the system and this impact is magnified in regional areas searching for population growth.
Many consider stamp duty a one-off-tax, but the impact of the fee over the life of mortgage can be considerable. The purchaser of an average home in 2015, priced at $490,000, will pay $8,400 in stamp duty. But over the life of the mortgage will pay an additional $6,333 in interest on the tax. That’s a total cost of $14,733.
But the story gets worse. Stamp duty thresholds have not really changed in a generation. The result of this is an alarming amount of bracket creep. The stamp duty cost for a median house in Queensland has risen by 632 per cent since 1995. Over that same period CPI has only increased by 171 per cent.
This costs means that stamp duty acts as a dead weight on Townsville’s efforts to attract people from across the country to come and live and contribute to the local economy. Stamp duty makes it very expensive to relocate and this must have an impact on people’s decision to move.
Taxes are meant to lean lightly on our economy, not act as a barrier to activity, transaction, job creation and prosperity, but that’s exactly what stamp duty does in Townsville.
The national tax debate might be loudest in Canberra, but centres like Townsville stand to benefit most from moving into a 21st century tax system. If the outcome of this process is the termination of inefficient, unreliable and distorting taxes, the property industry will be able to deliver the economic gains that Townsville is keen to achieve. That will mean greater prosperity for Townsvilleans, more job opportunities and a stronger community to live, work and play.