Tax reform and the politically possible
Last week the Prime Minister launched a proposal for the states to levy their own income tax.
While the debate over Federal-State relations lasted about 48 hours, we now know that the Prime Minister was pressing the states to reform their own inefficient taxes. And for good reason.
Stamp duty is a notoriously inefficient tax. It costs jobs, hurts the economy, makes our cities less efficient and is a rollercoaster tax base for state governments.
There's no doubt Australia would be better off without it and finding a pathway to phase out this archaic tax needs to be a top reform priority for our political leaders.
However, those who argue that stamp duty abolition can be funded just by expanding land tax need to do their sums.
The facts are that businesses already pay very high rates of land tax, with aggregation and other features creating significant distortions in what is billed as an inefficient tax.
A new flat land tax on the family home could certainly raise a significant amount of money.
However, we wanted to see if the idea stacked up – and if implementing it was as easy as it sounds.
So we commissioned a state-by-state economic analysis of the issue. It found that the average home owner would have to pay $2360 each year in land tax to fund the abolition of stamp duty. That’s an average figure, so families and households in our bigger cities would pay even more.
This is likely to be a bridge too far for state and territory leaders. Our judgement is that a new land tax, for living in the family home, could not be sold to the public, particularly during a time when real income increases have stalled.
Tax reform must be tempered by a realisation about what is politically possible.
Nevertheless, the case for state tax reform grows and we will continue to put the case for sensible and achievable economic reform.