Interesting article by Robin Christie | 16 Jul 2015
Property levies could be the key to fixing state and territory budgets, and could raise as much as $7 billion a year, the Grattan Institute has claimed.
Grattan’s ‘Property Taxes’ report…..explores how imposing a broad-based property levy could help Australia’s state and territory governments to boost their deteriorating budgets.
According to the report, a levy of just two dollars for every $1,000 of unimproved land value would raise $7 billion a year.
…….While it accepts that property taxes can be unpopular because they are highly visible and hard to avoid, it states that they are also both efficient and fair. In addition, it argues that property taxes don’t change incentives to work, save and invest.
“Our proposal is manageable for property landowners, and protects low-income people,” said Daley. “Low-income retirees with high-value houses could defer paying the levy until their house is sold.”
Key points
According to the paper, other key arguments in favour of property taxes include:
Unlike capital, property is immobile – it cannot shift offshore to avoid taxes.
Over the last 25 years, taxes on property and property transactions have been the only significant growth taxes for states, with revenues keeping pace with the economy.
Shifting from stamp duty to a property levy would provide more stable revenues for states, and add up to $9 billion in annual GDP.
“Concerns about the risks of multinational tax avoidance, the increasing mobility of capital around the world, and the increasing value of residential property relative to incomes, should make property taxes a priority in any tax reform,” states the paper.
“Higher property taxes could also be used to fund the reduction and eventual abolition of state stamp duties on property. Stamp duties are among the most inefficient and inequitable taxes available to states, and their revenues are inherently volatile.”
Abolition of stamp duties would remove the temptation for State governments to restrict land release, driving up prices in order to increase stamp duty revenue. But high prices act as a deterrent for young families to purchase their own homes. Land taxes instead would create an incentive for states to release new land for development, widening property ownership and their tax base.
Read more at Could a new property tax save the economy?.
Property taxes are a lazy and inefficient way to address budgetary shortfalls and vertical and horizontal fiscal imbalances. I won’t go into the details but in essence what is needed is a full blown review of budgetary revenues and expenditures at all levels of government with a view to introducing user pays principles to the extent possible supported by general levies which minimise resource allocation distortions.
Disagree. They are much more effective than stamp duties, but should not be used to cover fiscal profligacy.
As a former tax economist, I agree that a site-value tax would be the least “distortional” choice. This has been well-established in the scientific community for many years, but awareness of it has not reached so far in the world of politics. A tax based on site value should, for the reasons cited in the article, play a larger role in all government revenue-raising.
Property taxes and stamp duties on property acquisitions are the law of decree by socialist/fascist governments…they cannot balance their books and look for the quick fix for taxes,totally corrupt and counterproductive…In Fact stamp duty is a sign of socialist wealth redistribution by the productive (public sector) to the unproductive (government budget deficits)…corrupt and inept governments will always raise taxes on whatever field of the economy that is doing well,be it property,mining,export,import,whatever,it is a tax grab by inefficient governments…or in the case of NSW .. is a tax grab by efficient governments to offset expenditure for other government spending…all governments will extol the virtue of tax or duty to the masses..the reality is hard asset investment should be beyond the reach of any government.
Australians are being bled dry by our in complaint governments. A recent paper showed state and federal taxes made up 44% of a house price and trying to find anything to live in under a million is near impossible unless you want to put your family up in a one bedroom flat in some city’s. Then you have record council rates to consider all based on a property value but these rise by 5% every year some years more. I cannot afford to live in this once great county anymore
https://hia.com.au/~/media/HIA%20Website/Files/Media%20Centre/policy%20developments/CIE%20Tax%20Report.ashx
One of the many problems with a property tax is 1) – It’s immoral and wrong that those that are prudent should pay for those that are not..2) – A property tax would be a forerunner to a wealth tax ( proposed by the IMF a few years ago)… A supposedly one of tax on wealth ( yeah right) by the powers that be for no other reason than they can.
3 – It would once and for all show the measures that governments are willing to take to cover their ineptitude and promises for the socialist/welfare state..and would be detrimental to the common eco system…stymie cash flow through building renovations/supply of those required..banking…agenting…you name it..tax it and kill it…the socialist way.
Taxes are unavoidable, but I agree they should not be used to fund wasteful expenditure. Most taxes act as a disincentive. Stamp duties reduce asset transfers. Taxes on alcohol or petrol reduce consumption of these items. Taxes on sales reduce overall consumption. Taxes on income reduce output. The higher the rate of tax, the greater the disincentive. Broad-based taxes at low rates are therefore less “distortional”. As H Beck pointed out, property taxes are one of the most effective alternatives. We need to move away from a system based primarily on highly distortional income taxes towards low rate, broad-based consumption, excise and property taxes in order to build a more competitive economy.
Show me proof that taxation reduces alcohol consumption..this is furphy !
You do get negative-sloping demand curves (where demand increases as the price rises) but they are like unicorns.
Colin,I find the proposal quite outrageous,it is a double dip tax,a 2nd tax on a property that I have already paid stamp duty on…if this proposal is implemented will I be afforded a reimbursement for the stamp duty I have already paid ?
So one can invest the same amount in shares, even long term buy and hold, and pay no such equivalent tax. The tax may be efficient but it is nonetheless a lazy tax. And I would think it would lead to an increase in rent as somewhere the added impost to investors needs to be passed on. Early days in Canberra for this tax. It will take many years to be fully implemented and already it is seriously affecting home owners, especially low income earners that happen to own their own home (such as retirees). I can only imagine the stress and distress caused to someone who has worked hard to own their home all their lives to have a roof over their head in retirement, and then have to sleep at night knowing their house is being eaten away from under them to go to government coffers.
Someone please explain why we work so hard to pay taxes to allow able-minded and able-bodied people that don’t work a form of what I call “negative taxation”. I call this discrimination. And I feel more and more discriminated against.
Totally agree with your thoughts Victoria..I can see government “acquiring” houses when the tax hasn’t been paid,just like councils do with long term rates default ( which is daft,as the property then becomes dead weight on the council books)..this is an extremely discriminatory tax directed at homeowners and landlords,the government simply wants a tax on tap,as you say,it’s a lazy tax.
Australia has become a country that is too expensive to retire in..we are gouged mercilessly…this would definitely tip the scales for me to sell up and emigrate.
If there is no stamp duty, when you sell your property you would be likely to receive a higher price.
I am all for lean, efficient government. But taxes are inevitable. It is simply a choice between income taxes, excise duties, stamp duties, sales (or value added) taxes and property taxes. Most of us would choose the tax that seems to affect us the least (like taxes on cigarettes and alcohol if you are a teetotaller). But we all end up paying in the end, whether directly or indirectly.
you forgot the levies on property prices like the emergency services levee UP 300% this year and the save the river Murry levee which was full but still need saving.
We blew the mining boom cash on baby bonuses and desalination plants we never needed now mothballed
Hey, wait a minute! I already pay almost $3,000 p.a. on a $1m property, and $775 on a $500k property in the form of State Land Tax. Except your own home, this lazy tax is already in place.
My primary concern is the difficulty young families face when entering the property market. Stamp duty is just one of many obstacles that need to be addressed as a matter of urgency. We need strong growth in new home construction to boost the economy — not only the construction sector but retail as well. At the same time we should not encourage new entrants to borrow large amounts at low interest rates which would put them (and the whole economy) at risk when interest rates rise and inflated house prices crash.
Colin,now this point you have made is very valid indeed,my son has just completed a 2nd investment property and added a granny flat in the syd west suburbs..at the moment he will have three incomes from 2 properties…he wants to do a 3rd..I’m telling him to wait..much is at stake and if he goes hard now on a 3rd property rising interest rates will wipe out his ROI..he was a bit upset with me at first ( maybe I hit a nerve) now he is coming around to my advice to protect oneself from the downside..interest rates had better be gradual in increase or the entire Australian investment sector will be wiped out ad with them the big 4 banks…which are now just property speculators themselves.
If stamp duty is abolished over a one third/one third/one third over 3 years..and indeed a property tax is implemented..the only democratic way to approach this is..all property owners that have paid stamp duty on the properties would be exempt from the new property tax ( seems fair right ?) all new property acquisitions from this point would be liable to a property tax,but not stamp duty..now this is fair and equitable…I would support such an agreement…the facts are that the government is not fair in such matters as taxation and will only back up when confronted by the maddening crowd..property owners need to galvinise against a double dip tax and force the politicians to address the fair policy I have laid out herein.
Allow past stamp duty paid as a credit against property taxes?
One of the big problems with what was presented of the paper is the implication that the extra $7 billion in revenue for the government will be a good thing. Perhaps we could extend that logic and make the tax bigger, and more of them and go for a complete saviour state and end up with Russia and all the social implications that went along with that.
Some taxes are inevitable. Some. Any more than the bare minimum kills capital. Kill the capital, at any level, and you lower the economic tide with each bit, and poverty comes upon you like a bandit.
At the level we are at, Government IS the problem, and tax IS the problem. They are not the solution. A fair tax system (not a socialist graduated tax system that shows partiality), and small government who encourage all to make a go of it is the way to keep the economy growing. It is what created the wealth out of this harsh continent.
As for the housing affordibility issue for young people: What a red herring. Housing is still affordable (someone is buying it) IF young people learn a work ethic, understand the miracle of compounding, are self sufficient and self disciplined. Being a spendaholic, incurring huge HECS debt, and needing to have it all straight away (overseas trip, the best housing, best located housing, new car etc) are the reason why so many can’t afford housing. THEY cant afford it – that does not mean that housing is unaffordable. What about the idea of buying something smaller, further out and working up from there.
We all seem to agree that minimizing government waste is a priority. The next step is a fair tax system that encourages growth. Graduated system of income taxes is a major obstacle. So are stamp duties. The alternatives are broad-based taxes at low rates. We already have the GST. What other alternatives are there besides property taxes? Excise taxes, even at high rates, do not raise the same kind of revenue.
We measure housing affordibility by the ratio of the average house price to average disposable income. It is a major obstacle to growth. And high household debt levels are a major threat to economic stability. I think even Alan Greenspan would now agree.
See Australia’s housing affordability crisis:
Government wastage is why we have high tax, I worked in the public sector for ten years. I was amazed at the wastage in every sector in every way. If we take 20% out of every area of government. We will have plenty of money for govt coffers.
John, You’re preaching to the choir. I think we have all witnessed examples of government waste. You will never eliminate it completely, but need to keep tight control.
The ideas of abolishing negative gearing and property taxes seem to be very fashionable at the moment but there is not a lot of actual number crunching going on.
Taking billions of dollars away from property investment is bound to move some investors out of the market. If the result is less rental property available, then rental prices will rise. If the result is that investors are forced to recoup the taxes then rental prices will rise. I think the effect would be to force more renters into buying and increase demand. Alternatively, if you are not able to borrow the money then you just end up paying more rent: that is not a good outcome if you are trying to save a deposit or even just live on a small income.
Some modelling needs to be done before leaping into these kind of decisions.
Limiting negative-gearing to newly-constructed homes might actually boost the housing stock.
One report I heard stated that Government revenue needed to be increased to help pay for the ever increasing health cost burden. Rather than concentrate on what taxes are the best way to increase revenue, our Government and their minions should address reduction of costs. One report I read recently stated that if Medicare payments were restricted to medical treatments that are backed by evidence, the whole budget deficit would be recovered. Most Australians do not realise that only about 11% of medical interventions have been proven to be effective (according to the British medical Journal’s Clinical Evidence Group). But the cost for these unproven treatments continues to escalate and we think we will all die if the Medical sacred cow is challenged.
Australia leads the world in two categories: 1) income tax and 2) drug addiction.
Australian federal, state and local government wastage is why we have high taxes. I worked in the public sector (within different government bodies) for over twenty two years. I was amazed at the wastage (and disregard) in every sector in every way.
If we take 30% out of every area of government we will have plenty of money for govt coffers. Thanks to John’s earlier post – July 18, 2015 at 7:56 am EDT.
The Australian drug epidemic is (completely) out of control. The Australian federal, state and local authorities have proven themselves to be totally incompetent (and disinterested) in this area.
Their constant claims of “working hard” on the drug issue is an absolute farce.
I am afraid that both these afflictions are not unique to Australia. But we should hold both State and Federal governments to a higher standard.
Colin,the premise of this conversation is quite ridiculous in regards to the heading” Can a property tax save the economy?”..what a ridiculous comment..as if one tax would solve the inefficient administration of existing taxes..Socialist governments will ALWAYS ask (demand) for more taxes..quite frankly Colin I have a hard time working out your logic..you seem to in favour of this..you have nominated quite a few misguided reasons to how this will lead to cheaper housing..all flawed..what is your gameplan ??? are you indeed a misguided socialists that will now favour all hard working capitalists to be taxed out of existence..or to walk away from the property market..causing a collapse..the government and the banks have worked hand in hand to allow this status quo to exist..now you seem in favour to blowing it out of the water..my son is 25 and has two properties…work hard..invest and stop complaining..and stop beating the socialist drum..not a good look.
I Have a hard time reasoning with a capitalist that now wants to be a socialist at the expense of the capitalist..capitalist = those that control Capital and make it work..socialist = wealth redistribution from the doers to the bludgers !
Jay, The capitalist dream is to work, save and invest. Not borrow and speculate. That leads to eventual ruin …. and destruction of the capitalist system.
My aim is quite simple. I would like to see an efficient well-run government create a level playing field that encourages people to work hard, save and invest with the aim to create a better future for their families with minimal interference from the state.
What I see instead is successive governments mismanage the economy; destroy local industry; encourage welfare dependency; balloon private credit, placing banks and borrowers in a precarious position; while distributing largesse to their support base in order to garner votes for the next election. I believe the flaw lies in our political system which has long been white-anted by the major political parties, and would like to see more direct democracy and far-sighted management of the economy along the lines of the Swiss system. We can all dream can’t we?
I agree with your response Colin..I too would want those conditions for my family and friends…however it is a pipedream..the modern socialist experiment is close to running it’s course,perhaps it has a decade more to go before it’s demise…unbridled capitalism was the forerunner to modern democracy (ie USA) however,it didn’t take government too long to figure out it could garner votes by promising all sorts of favours to the hoiploloi..socialism is the bane of the modern world and the debt incursion you speak about is the spawn of the keynesians,not the capitalists. Yes we can dare to dream…and I agree with your latest comments..but it is a dream and will not be realised without a change…the modern socialist governments the world over have painted themselves into a dark corner..I for one am not smart enough to figure out how it will eventuate..there is pain in the pipeline..no doubt..then we will see if government can indeed govern from a capitalist footing,ie checks and balances.
Burgeoning debt, both government and private, and unfunded contingent liabilities (pensions and medicare), beloved by both Left and Right, are the biggest threat to our capitalist system. And very difficult to reverse once incurred. The only solution is to hold debt levels static in real terms and wait for GDP growth to gradually erode the value relative to GDP. The only way we are likely to see this eventuate is by agitating for changes to the political process. The Swiss seem to have got this right, but no other government seems willing or able to follow.
I wrote this in 2013:
And this in 2012:
This article by Steven Spadijer at ANU investigates Direct Democracy.