Calls to nix stamp duty

By Gerv Tacadena | 03 Jul 2020

The NSW Review of Federal Financial Relations has unveiled the draft of its report to the state government, calling for several tax reforms.

David Thodey, chair of the NSW Review of Federal Financial Relations panel, said the state and federal government should prioritise phasing out many of the nation's "unfair and damaging” taxes, including stamp duty and insurance tax.

"Any reform will need to be done in a way that provides more secure and reliable funding to the states and allows them to gradually rebuild their balance sheets for the benefit of future generations," he said in a statement.

One of the recommendations in the report is the replacement of stamp duty with a broad-based land tax. It said that a broad-based land tax is more efficient and equitable than the current transfer duty. A copy of the report is available here.

The report found that the state government of NSW raised around $7.1bn from stamp duty in the financial year 2018-2019. This makes stamp duty state's second-largest source of tax revenue.

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"In the case of transfer duty, those who buy and sell property more often to pay more tax, compared to those who transact less frequently," the report said.

This means that the cost of infrastructure and essential services is shifted to a narrow section of the population "who carry the burden" simply because they decide to move house or sell a business more often, the report said.

The report said a tax on land would be a more equitable approach to funding government services, based on the principle of “beneficiary pays.”

"The value of land is a measure of the benefits accruing to particular locations from infrastructure, services, regulation, access to markets, amenity, culture and community. A tax on land is, therefore, like a generalised user charge for the benefits society at large provides the landowner, which is a principled way of funding public services," the report said.

While replacing stamp duties with a land tax is unlikely to change property prices in the short run, the report said it may improve housing affordability in the longer-term.

Adrian Kelly, president of the Real Estate Institute of Australia, said the recommendation to abolish stamp duty is a step in the right direction for the housing market.

"There are many earlier studies that reinforce the findings of this report that abolition of the efficient tax of stamp duty will bring economic and social benefits including assisting affordability by reducing the transaction costs of buying property," he said.

Kelly said economic activity in Australia could be lifted by shifting the composition of taxes from high economic cost state taxes to lower-cost Australia-wide taxes.

"As the report notes, state governments cannot eliminate inefficient taxes without going into deficit or having to reduce expenditure substantially. Hence cooperation between the Australian Government and the states is needed to undertake reform of inefficient state taxes," he said.

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