With the ACT Government moving to replace Stamp Duty with Land Tax the recent article from the Estate Agent is worth reading.
This article was published in the April editon of The Estate Agent. REIV CEO Enzo Raimondo will be making further comment in the June edition.
Land tax to replace stamp duty?
The Estate Agent has reported previously on the consensus that has developed around the need to replace stamp duty.
Reaching agreement on the need to replace it will appear, in retrospect, quite a simple exercise when contrasted with finding a new revenue source.
This is in part because the federal government has ruled out any change to the GST. That restricts the options substantially; after all, if you need to replace stamp duty across Australia it will cost around $14B based on 2007–08 data in the Henry Tax Review and there are not many replacement options aside from GST or income tax.
Removing the GST option, the Henry Tax Review recommended replacing stamp duty with a land tax levied on all land, imagining that this would be a municipal rates-type bill. The review noted that there would be significant transitional issues, as government could not charge land tax on a property where stamp duty had already been paid. That is a significant transitional issue but not the only one.
In recommending the change, the review stated: Existing land tax arrangements should be replaced, subject to a long transition to slow valuation effects and facilitate landholding adjustments, by a land tax applying to all land regardless of use.
The rate scale would be based on the value per square metre of land.
A unit value threshold would effectively exempt most land in agricultural use.
Most residential land could be subject to tax of about one per cent. A higher rate may apply to the highest value land (per square metre).
Land tax revenue would also replace stamp duties on land transfers.
This idea has been strongly endorsed by the social services sector, which also sees the removal of negative gearing as a step towards improved housing affordability. The strength of the sector’s endorsement can easily be seen in these comments from the recent Australian Council of Social Service National Conference. One of the speakers, housing economist and Associate Professor Judith Yates from the University of Sydney, was reported on ABC PM as characterising land tax along the same lines as the mining tax.
“Land tax is sort of like a Resource Rent Tax. People are benefitting from an unearned, incremental increase in the value of their land and ... I think that we really need to push on land tax very hard and very strong to try and reduce some of the excess consumption ... of land.”
In the same report that tone was matched by Sarah Toohey from Australians for Affordable Housing: “I think wresting back a fairer share of the nation's housing wealth might even be a harder prospect than getting some of our mining wealth back off Clive Palmer and Gina Rinehart was”.
Putting to one side the debate about whether land tax is a good idea, it is interesting to posit what land tax would look like if implemented. This was the subject of a report from the Australian Housing and Urban Research Institute (AHURI) called The spatial and distributional impacts of the Henry Review recommendations on stamp duty and land tax by Gavin Wood, Rachel Ong, Melek Cigdem and Elizabeth Taylor.
The paper contends that a shift to land tax from stamp duty would shift the burden of the tax to the areas with the highest land value, the inner city.
This table extracted from the paper shows that the properties within 20km of the CBD, which currently pay 61 per cent of the stamp duty bill, would pay 84 per cent of a new land tax. The burden would shift towards more expensive land because the tax would be a flat one based simply on a percentage of the land value.
||Proposed land tax
|| % of aggregate revenue
||% of aggregate revenue|
|0km < 10km
|10km < 20km
|20km < 30km
|30km < 40km
|40km < 50km
|50km < 60km
|60km < 70km
There is a range of impacts from such a change; one interesting idea suggests that shifting the burden to the more expensive suburbs would encourage greater turnover in outer suburbs, where the majority of transactions occur.
And there are other significant concerns created by the replacing of stamp duty with land tax: a projected drop in land values; the need for the government to run duel taxation systems; and the issues faced by the asset rich but cash poor in meeting the new annual bill. Expect to hear more on this debate over the coming years.