Crippling stamp duty could be replaced by an annual property tax - if only Australian governments got behind NSW’s plan?Credit:Pat Scala
The economic case for a stamp duty/land tax swap is watertight:having to pay stamp duty on the purchase of a property deters families from moving to the house or location that better suits their needs. In contrast,land taxes paid each year,much like council rates,don’t distort people’s decisions. In economic parlance,land tax is a much more efficient tax,so the mooted swap wouldimprove average living standards.
So why haven’t state treasurers been rushing to do this? Because the politics of the transition are hard. State governments that no longer collected stamp duty revenues would struggle to keep their schools and hospitals open – unless they replaced that revenue stream with another,such as property taxes.
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But property taxes are often unpopular precisely because they are highly visible – they are payable each year – and difficult to avoid. In contrast,stamp duties,although a huge impost,account for only a small fraction of the purchase price of a property. And people who have recently paid a big stamp duty bill would understandably feel aggrieved if the rules changed and they received a land tax bill soon after.
To manage the politics,Perrottet hasproposed an opt-in model:when people bought a home,they could choose between it being a land-tax property or a stamp-duty property. But once properties were caught in the land tax net,they would stay there.
That would solve the key political problem:no one would be forced to pay land tax unless they opted in.