Why stamp duty should be abolished

It’s been disappointing to watch to the gathering of state premiers in Sydney to try and find a way of plugging the looming funding shortages in education and health services.

NSW’s premier Mike Baird kicked things off with an outlandish proposal to not only lift the rate of GST, but to lift it by 5 per cent to 15 per cent. SA reformist Premier Jay Wetherill was willing to discuss it, but the other new key Labor states of Queensland and Victoria immediately rejected any rise in GST and called for a lift in the Medicare levy that would see high-income earners paying a top tax rate of 51 per cent.

West Australian Premier Colin Barnett was his usual pragmatic self and said he would consider any of the proposals put forward as long as WA got more of the tax revenue pie.

The Federal Government collects the Medicare levy so the Labor States’ proposal it was a bit like Prime Minister Tony Abbott being blamed for raising taxes so he could fund the State’s shortfall. Doesn’t sound like much has changed.

But while the Premiers were discussing how to raise more money without being thrown out of office, the missing element in the dicussion seemed to be the overall inefficiency of the current tax system and how to get rid of some of the worst taxes ever invented – the main two being stamp duty and payroll tax.

While not an inefficient in its application, payroll tax is actually an inhibitor to employment, a fact not lost on Premier Wetherill, who is moving to reduce it. He has also announced he is looking at introducing a broader land tax to replace stamp duty if possible.

The issue is stamp duty keeps coming up in various submissions to the Federal Government’s Tax Review. It’s a very lumpy tax and delivers buckets of cash when the property market is booming, and then disappears in the down cycle. It’s not a reliable tax upon which to base state budget forecasts.

Interestingly while the premiers and the PM were musing about revenue falls, the Property Council of Australia came out with its proposal containing a lift in GST to 12.5 per cent, broadening its application, and imposing a 0.25 per cent universal tax on all land owners. According to the PCA this would raise enough money to abolish stamp duty and cut the company tax rate to 27 per cent.

Notice none of the windfall would go to fixing the states’ shortfall on education and health. Of course many would say the Property Council was pushing its own barrow, but what was refreshing was its total response to the failures of the tax system with a proposal to not only plug the funding hole, but also give the economy a turbo boost.

The Property Council said the plan would ‘increase economic well-being by just over $10 billion per annum . . . grow the economy . . . and provide a better mix of taxes,’ to paraphrase Property Council chief executive Ken Morrison. The Property Council was one of several business groups to have swung in behind the Australian Industry Group’s call for a GST increase to be used to get rid of “bad” state taxes.

The Property Council commissioned modelling by ACIL Allen Consulting, which looked at several options for re-jigging the tax mix. Without boring you with all the numbers, in broad terms their plan was to increase GST and widen it to cover most sectors, introduce a flat tax of 0.25 per cent on all land, including owner-occupier properties. Abolish stamp duties along with all other exemptions and cut company tax would be to 27 per cent.

Some of the money raised would be allocated to removing other inefficient taxes with some of that probably forming of a compensation package for low-income householders. The Gratten Institute has also recently published a paper showing that a tax on the value of property would be a fairer way to help pay for large increases in spending on health and education in the future.

After many years of complaints about the retarding effect of stamp duties on all sectors of the economy business is finally finding a voice and backing it up with come innovative proposals to reform a tax system that will not be able to fund Australia’s role as a 1^st world economy in the 21 first century.

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