b'JULY 2020Stamp Duty vsBroad based Land Tax Every report on tax reform published inOver a long period, policy makers have favourably the last two decades has called for theconsidered replacing Stamp Duty with a broad-abolition of Stamp Duty, or conveyance orbased land tax, or other generally levied broad-based tax. However scare campaigns have always transfer tax, which is paid up front when afrustrated finalisation and implementation. property is transacted. Importantly, replacing stamp duties with a broad-Stamp Duty is highly inefficient and fostersbased land tax would increase the volume of housing intergenerational inequity as it: market transactions and improve the utilisation of land, which is the largest single contributor to thereduces potential housing market transactionsprice of housing. and limits the supply of existing homes for saleTo support the release of its Draft Housing Strategy, by deterring people from changing homes whenthe NSW Department of Planning, Industry and they otherwise would, to down size for example Environment (DPIE) has recently published a Factsimultaneously punishes first home buyers, whoBook, which notes home ownership rates for people can least afford to pay. between 25 and-34 years have dropped from 49% in The Henry Tax Review established that the welfare2005 to 35% in 2017 (see Figure 1). loss, or inefficiency, associated with Stamp Duty isAnecdotal evidence based on household between 30-40% because of its distortionary impactaffordability suggests that this downward trend has on behaviour, which reduces productive activity). 2 continued up to mid-2020. Stamp duty more than doubles most transactionThe Henry Report summarised the problem with costs. This deters transactions, results inStamp Duty as follows:significant under-utilisation of the housing Stamp duties on conveyances are inconsistent stock and has an estimated loss of benefit to the community in the order of $375 million perwith the needs of a modern tax system. While a annum. Replacing stamp duty with a broad- significant source of State tax revenue, they are based land tax could release a significantvolatile and highly inefficient and should amount of under-utilised housing and reducebe replaced with a more efficient means of house prices by about 6% after several years. 3 raising revenue. Conveyance stamp duty is highly inefficient The Review argued a powerful case for the broadening of the property tax base that would seeand inequitable. It discourages transactions a shift away from Stamp Duty towards a broad- of commercial and residential property based land tax: and, through this, its allocation to its most valuable use.Stamp duties are a highly inefficient tax on land, while land tax could provide an alternative andConveyance stamp duty can also discourage more stable source of revenue for the States.people from changing their place of residence When applied uniformly across a broad base,as their personal circumstances change or land tax is one of the most efficient means ofdiscourage people from making lifestyle raising revenue. This efficiency arises from thechanges that involve a change in residence. It immobility of the tax base and, unlike mostis also inequitable, as people who need to move other taxes, levying different rates of land tax inmore frequently bear more tax, irrespective of different States has very low efficiency costs. 4 their income or wealth. 562 Australias future tax systemFinal Report, (Henry Tax Review), p13.3 Abelson, P., Housing Costs and Policies: With special reference to Sydney Paper prepared for NSW Treasury,Applied Economics PL, May, 2016, p91 (also see p.63)4 Ibid., p46.5 Ibid., p49.'