Stamp duty has to go – time to consider greater reliance on land tax & GST

stampdutyrevenue

It is lamentable that our State Governments are so reliant on a source of revenue, stamp duty, that is very costly to the economy and has no defenders outside of State Treasuries who would greatly miss the money if it were gone (see figure above). Stamp duty is almost universally regarded as a very bad tax that:

As I’ve commented many times before, stamp duty involves very large efficiency losses, and it should be eliminated, and greater reliance should be placed on land tax and GST, which are less inefficient (see my post Inefficient State taxes).

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6 Responses to Stamp duty has to go – time to consider greater reliance on land tax & GST

  1. bjreconomics says:

    Good idea to review the stamp duty but I am a bit concerned about the negative effects of a land tax. It could give government an incentive to further restrict supply of land and housing to increase the value which would give them a higher return. The net benefits would depend on how it is structured etc. Maybe a state GST could be better and maintain the state’s ability to raise its own funds?

    • Gene Tunny says:

      Yes, I agree there’s a political economy issue about a tax designed to tax rents that can be influenced by other government policy levers. GST is effectively a State tax as all the money goes to the States. One interesting idea is a State income tax, which would piggyback on the federal income tax (its rates would drop to allow a State income tax and then the States could modify these as they see fit). I think it would be difficult to get up but has some attractions, including the prospect of greater tax competition between jurisdictions. Thanks for the comment, bjreconomics.

  2. Count me in for land tax. But when it comes to stamp duty, why not both? http://ckmurray.blogspot.com.au/2014/12/the-case-for-7-stamp-duty-on-property.html

    After all, it is jut a transaction tax. Efficient use of land actually doesn’t require trade in pieces of paper. The land can’t be moved or used better no matter who owns it. Want to build something? I bring the land, you bring the building – a very common JV arrangement.

    • Gene Tunny says:

      Thanks for the comment, Cam. There is an issue regarding the efficient use of labour/labour mobility as well, which is what the OECD study is getting at. I’ll have a read of your post.

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