New South Wales should move away from stamp duty in favour of annual land tax according to a new proposal, as it would encourage people to live in properties that best suit their needs and at the same time provide a more efficient method of generating revenue.

Outlined in a report in Fairfax media outlets, the A plan to end stamp duty: Making property taxation fairer in NSW report from the McKell Institute calls for the government to do away with the one-off stamp duty payment in preference of owners paying an annual tax levied at 0.75% of the value of their land.

According to the report, the stamp duty bill for median priced home in Sydney - $1,032,000, would come in at just over $40,000.

On median priced house in Sydney the land value would sit at around $700,000, meaning owners would face an annual land tax bill of around $5,250.

Peter Bentley, co-author of the McKell Institute report said the move would ease housing affordability and leave the majority of homeowner better off financially.

“The extension of land tax would deliver a range of benefits in addition to the abolition of stamp duty, including improving housing affordability, and helping to provide transport infrastructure funding,” Bentley said in the Fairfax article.

“Additionally, for the majority of New South Wales homeowners, the replacement of stamp duty with a land tax will reduce the amount of property taxes paid during their lifetimes,” he said.

The fact that the land tax would see those with higher priced properties pay a larger annual fee would also encourage downsizing.

“A single retiree...would be liable for higher land tax payments living in a five bedroom home on a double block of land than if they lived in a two bedroom apartment. Thus land tax would incentivise landowners to select housing that best fits their needs,” Bentley said in the Fairfax article.

The levying of annual land tax would also mean those that benefit the most from government expenditure would make more of a contribution than those who receive minimal benefit.

“One of the key factors that increase the value of land is its proximity to public transport and good roads. A new rail or road project, therefore, boosts the value of local homes, providing a windfall to existing landowners.

“If land values are taxed, then the annual tax bill would increase slightly to reflect the increased value of the land. Therefore those who are receiving a significant windfall from public expenditure would make a small contribution towards the project.”