Here's why Australia can afford a new property tax

Picture: AMC

Despite complaints from the real estate industry that it’s overtaxed, Australia lags behind its peers when it comes to the tax take from property according to a new report from the Grattan Institute.

The think tank argues that means the nation can afford to change its revenue raising mix via a new broad-based property tax at $2 for every $1000 of unimproved capital value of land or $1 per $1000 on the total value.

Such a tax, the research says, would raise $7 billion a year for the states, giving them much-needed revenue and greater fiscal independence from the feds and GST. If stamp duty was phased out, the overall economy would see an overall increase in GDP of $9 billion annually.

Everyone hates new taxes and the transparency of such a tax, which is hard to avoid and touches all land owners, is not going to be popular. Grattan Institute CEO John Daley admitted that to Business Insider, but argued Australia can afford to increase taxes.

The research notes “Australian governments derive far less revenue from property taxes as a share of GDP than they should”.

Daley highlighted that Australia was below the big 10 OECD average rate of revenue raised from such taxes. “Australia is well below the countries who we would consider our ‘peers’,” he said. That means there is room to implement the Grattan plan.

Daley said that the median Sydney property would attract a tax of just $772 per annum on the median house of $772,000. It would be lower in other states.

That cost would see property buyers discounting what they’d pay for properties with a fall in prices in the 3-6% range he said. So it’s likely to be unpopular with taxpayers on two fronts. Impact on house prices and ongoing costs.

“It’s time to take these types of taxes very seriously,” Daley said.

That’s because a broad-based property tax is at the very efficient end of the revenue raising spectrum with close to the least amount of economic drag associated with taxation.That’s good for the economy and economic activity because it does not distort incentives. It’s also hard to avoid so it raise the close to the expected amount of revenue.

More importantly though Daley said that from budget and fiscal perspective, if you take a portfolio approach to revenue raising, then Australia should increase the share of taxation raised from property as a share of GDP.

Joe Hockey has put state-based revenue raising on the table. Daley believes the time is ripe for the “states to take control of their own destiny.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.