A broad base property tax could raise housing affordability and expand supply while providing state governments with steadier revenue.
A new study has found that the implementation of a low-rate standard property tax could be a highly preferable alternative for both governments and taxpayers to the existing stamp duty system.
The study released by the Grattan Institute has found that a broad-based property tax of $2 charged on an annual basis for every $1,000 in land that remains unimproved could generate as much as $7 billions per year for the state and territory governments.
The comparatively modest property tax would be levied on a recurring, annual basis, unlike a stamp duty, which is far higher yet paid only once.
While to most members of the general public another tax is just another tax, the Grattan Institute found that switching from the stamp duty to a broad-based property tax could have a salutary effect on both local government budgets as well as the health of the broader economy.
Out of all the real estate levees examined by the Grattan Institute, the broad based property tax would provide the most steady and consistent revenue stream for state governments, given its recurrent nature.
This would better position state government to make sound longer-term budget decisions, given the need for stable income to achieve any forms of ambitious policy.
In stark contrast the stamp duty that exists at present is the most volatile of all property-related levees, as it depends upon transaction volumes within a given year, which can be highly variable.
Another advantage of the property tax from the point of state coffers is that it extremely difficult to avoid, given that land and buildings are fixed, immovable assets, and can’t be physically concealed or shunted intangibly between bank accounts.
“Unlike capital, property is immobile – it cannot shift offshore to avoid taxes,” said Grattan Institute CEO and report co-author John Daley. “Over the last 25 years, taxes on property and property transactions have been the only significant ‘growth taxes’ for States, with revenues keeping pace with the economy.”
According to the Grattan Institute the property tax could also improve the health of the general economy, as it would not interfere with the economic decision-making of individuals as much as other forms of taxation. The tax would be applied equally whether a given property lot is developed or empty, and thus would not incentivize owners to dodge taxes by leaving land vacant.
Despite the distaste felt for them by property owners, Daley considers the property tax to be one which is both equitable and effective.
“While property taxes can be unpopular because they are highly visible and hard to avoid, they are also efficient and fair, and don’t change incentives to work, save and invest.”
The replacement of the stamp duty with a standard property tax could also help address one of the most pressing issues for today’s property market – poor affordability for first-time homebuyers.
Rescinding the stamp duty would not only make homes more affordable, it would also increase the willingness of those planning on downsizing domiciles – empty nesters and the elderly for example, to sell their old homes to buy new ones, thus increasing supply.
The Grattan study’s findings are in line with calls from leading industry groups for the abolition of the stamp duty and the introduction of more fair and efficient property taxation regimes.
Ken Morrison, chief executive of the Property Council of Australia, said the removal of the stamp duty and the introduction of a more efficient tax regimes would help solve the problems of housing affordability and ailing state budgets all at once.
The Urban Development Institute of Australia said that the inefficiency of the stamp duty was impeding productivity and economic growth in Australia, and the building and construction sector in particular.
UDIA national vice president Michael Corcoran has voiced his support for a broad low land tax as the preferable alternative to the existing stamp duty.