Grattan Institute: A broad-based property tax can raise $7 billion for the states

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The Grattan Institute’s CEO John Daley knows that his latest research note recommending a broad-based property tax across Australia won’t be an easy sell. But he also knows that the deterioration in the budget positions of Australia’s states means something must be done.

That’s because it’s not only the Commonwealth Government that is under significant fiscal pressure “state government spending on health and education and other vital areas is also growing faster than GDP”.

So Daley, and his Grattan Institute colleague Brendan Coates, have released a new paper, “Property Taxes”, in a series of working papers that Grattan is releasing to look at Australia’s weakening fiscal position.

Daley and Coates find that a broad-based property levy of “just $2 for every $1000 of unimproved land value would raise $7 billion a year” for state and territory governments. It would also help put the finances of these governments on a stronger, less volatile fiscal footing.

Daley told Business Insider that he recognises that property taxes are unpopular. “They are highly visible and hard to avoid,” he said. But the key point, he said, was that the broad-based nature of the tax was efficient and fair.

Crucially, Daley said they “don’t change incentives to work, save and invest”.

Daley also highlighted that the loss of economic activity that arises from such a tax is far less than that for the current stamp duty arrangements, less than half the loss of Commonwealth government levied personal income and only a third of Commonwealth company tax. It’s impact is closer to the small impact of council rates.

Daley also believes that a gradual phaseout of the inefficient property stamp duty can add around $9 billion to annual GDP.

Asked if in the current political environment he thought the Commonwealth or the states would take up the challenge of instituting such a tax, Daley highlighted that the ACT has already moved down this path and that in NSW we’d just seen Mike Baird prosecute an argument for reform of the electricity industry and take that to the electorate.

“So, I don’t think reform is impossible,” Daley said

With federal treasurer Joe Hockey putting pressure on state governments to fund themselves and raise the GST, this Grattan recommendation comes at the perfect time. The key, Daley said, is that this levy gives the states a chance to “take control of their own destiny, not rely on the Commonwealth and other states”.

That’s almost the perfect recommendation to any state premier.

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