It’s good to see the NSW Government considering a switch from stamp duty on property transactions to a broader land tax, at least for future transactions where it’s possible people could be offered a choice of either an up-front payment of stamp duty or an annual property tax (see Making home ownership more achievable in NSW). Effectively, the annual property tax would be a more broadly applicable land tax, for which various exemptions (e.g. for principal place of residence) are currently available.
Designing the proposal so it applies to future transactions only would allay concerns about asset-rich but cash poor retirees struggling to pay property tax bills. The devil will be in the detail, but in principle it’s a good idea and one the Queensland Treasury should be considering, too.
The NSW 2020-21 Budget (on page 1-15 of Statement 1) nicely summarises the rationale for the switch:
The current tax system is not fit for a modern society. It impedes home ownership and makes it harder for people to move to where they want to live. Rather than moving to a more suitable home, people may stay in a home that is too big or too small for their needs or endure longer commutes than necessary. The tax also acts as a brake on the economy.
Certainly, the NSW Government sees this as a measure which could help stimulate the economy in the short-run by leaving more money in the hands of home buyers rather than sucking it into Consolidated Revenue. It would also improve housing affordability.
Replacing stamp duty with land tax is something economists have long advocated for and is long overdue. I’ve written about the merits of doing so on QEW in years past, and this year my colleague Nick Behrens suggested it on his blog:
Tax reform is the antidote for Australia’s COVID-19 economic crisis
Incidentally, I spoke about how stamp duty should be replaced with land tax in a long-form podcast discussion yesterday with Matt Wong of Discernable:
Among other things, Matt and I spoke about the Queensland election outcome (from 53:54 in the video). I spoke about how Premier Palaszczuk repositioned herself expertly during the election campaign to appeal to regional voters, appearing in high-vis vests and with big trucks at mine sites, for example. The Premier also had a very simple message, that she was Keeping Queenslanders Safe, and objectively the Government had generally done a good job on COVID (except for its harsh policy on borders, in my view). The Keeping Queenslanders Safe message obviously appealed to regional former One Nation voters who shifted to Labor in large numbers. Other factors helping Labor were Jackie Trad’s departure from the Cabinet earlier in the year and Palaszczuk’s promise to keep her out of it if Labor were re-elected, as well as the strong Labor vote among public servants in SEQ who remember the job cuts during the Newman years.