Some things divide the nation: sporting contests, political allegiances and pop stars. But the diabolical impact of stamp duty isn’t one of them.
As every economist will tell you, stamp duty does everything a tax shouldn’t do. It distorts behaviour, lowers turnover, locks people into inappropriate housing, dampens construction and reduces affordability. It is so inefficient that Treasury has estimated that every dollar of stamp duty revenue raised by governments does 72 cents worth of harm to the economy.
The evils of stamp duty are well understood and have been for years. The challenge is how to replace the $25b of revenue it raises nationally.
While the 2010 Henry Tax Review recommended using either an extension of the GST or a new broad-based land tax to do the job, the reform debate has mostly focused on the latter option.
Stamp duty abolition is back in the news, with next week’s NSW budget set to include some sort of reform announcement and reports that state treasurers have already discussed financial support for a tax switch from the new federal government.
The Property Council supports the objective of phasing out stamp duty and has advocated intently with governments around the country on reform options for years.
We worked with successive South Australian governments as they completely abolished commercial stamp duties (without any new taxes).
We’ve long argued the inequities of the ACT Government’s reform model, which sees the ACT raise more stamp duty revenue today than when they started a program of ‘abolishing’ it a decade ago, and where most commercial properties pay a stamp duty sized rates bill every year (and then still pay stamp duty when they purchase).
And we’ve developed seven principles of successful stamp duty reform for the NSW Government, to ensure any change delivers the biggest economic dividend without unfairly impacting the commercial property sector.
While the fresh reform zeal is very welcome, the hurdles facing the type of changes NSW is considering are large. Giving taxpayers the power to ‘opt in’ to a land tax instead of paying stamp duty is a big plus, but it means substantial revenue losses for a decade or more in transition; losses which are very hard to fund at either level of government.
There is no easy solution to Australia's stamp duty quandary, but the Property Council is working hard to help find a way.