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Far-reaching housing tax reform could be back on the agenda

Posted by on May 10th, 2020 · Uncategorized

By Hal Pawson, Associate Director, CFRC

The pitch to replace stamp duty with a broad-based land tax has recently seen a new surge of advocacy. Just in the past couple of weeks the Reserve Bank Governor together with state Treasurers in both NSW and Victoria have all weighed into this debate once again, arguing that such a transition is now an urgent priority.

Fundamentally, this is posed as replacing one of the ‘worst’ taxes of all, with one of the ‘best’. Out would go a mechanism that creates an economic drag by discouraging residential mobility when such moves could enhance productivity. In would come a system that, by levying a cost on holding all property, discourages damaging speculation and encourages owners to use land and housing more effectively. A phased program to achieve such change would look to emulate the process initiated in ACT back in 2012.

‘Let’s scrap stamp duty’ is an appealing case, but it can be oversold. Importantly, as previously explained on this blog, it will have no direct impact on home ownership affordability: reduced tax on house purchase will be simply capitalised into property prices.

Another concern that must be addressed in any stamp duty to land tax transition is the effect that this could have for private renters. Lubricating the trading of properties by reducing transaction costs could harm tenant security. In all Australian states and territories, landlords can at present terminate tenancies outside a fixed term in order to sell a property with vacant possession. And remarkably, Queensland has just legislated, as part of its COVID-19 emergency response, to allow landlords to end a tenancy even during a fixed term to prepare a property for sale.

Even under Victoria’s plan to outlaw no grounds evictions at any time (expected implementation later in 2020), a landlord remains free to terminate a tenancy when they wish to sell. In keeping with the stance of the UK’s Generation Rent pressure group there’s an argument that this is too permissive – and would certainly be so in a world with no property transaction tax. Arguably, landlords should be free to sell only without disrupting an existing tenancy – i.e. where the buyer is another landlord who inherits the former owner’s obligations.

More broadly, though, in common with most Australian tax and policy experts, the replacement of stamp duty with a broad-based land tax seems to me highly desirable in principle. But this is a tune that has been sung many times before. In 2017, for example, Sydney Morning Herald readers were informed that a plan for such change was being hatched by Australia’s top political leaders including then-Treasurer, Scott Morrison. As we noted at that time, this harked back to perhaps the most authoritative case for such a package, as published in the 2010 Henry Tax Review.

In 2017, just as in 2010, the reform pitch fell on stony ground. What, if anything, has changed that might result in a different outcome in 2020? First, of course, the current public health crisis is proving to be a ‘focusing event’ that could open up possibilities for substantial, lasting and overdue progressive reform. Second, since the last upsurge of interest in the stamp duty to land tax , AHURI research has placed on the table a detailed implementation plan for this project of supreme administrative and political complexity. The tax advocacy organisation, Prosper Australia, has also produced detailed package of measures for making ‘the big switch’.

Possible new impetus for progressive property tax reform must be seen as a positive spin-off from the COVID-19 emergency. The same is true of the remarkable state/territory government street homelessness rehousing programs seen in recent weeks. Equally welcome is the building crescendo of voices advocating for a large social housing investment stimulus package to boost post-crisis economic recovery in a socially beneficial way.

But none of this detracts from the case argued in our recent book that the structural and systemic flaws in Australia’s housing system can be properly addressed only through a comprehensive national policy review that firmly re-engages the Commonwealth Government as lead player in analysing and fixing the problem.

This post first appeared on the Fifth Estate. Read the original post here.

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