Hockey’s call for proper debate on state taxes welcome

GUEST OBSERVER

Federal Treasurer Joe Hockey’s call for a proper debate on state taxes and the state governments’ over-reliance on inefficient state taxes including stamp duty is welcome and completely in line with community attitudes. The Treasurer’s speech comes just days after polling revealed widespread public acceptance of future GST changes.

Joe Hockey has said what everyone knows – stamp duty is a harmful, distortive tax which needs to be abolished and this will require broader tax reform to be achieved.

Abolishing stamp duty and replacing it with a more efficient revenue base would address housing affordability, boost the economy, be supported by the community, and bolster fragile state budgets.

Obviously the removal of stamp duty needs to occur in conjunction with a broader series of tax changes so that states and territories have the revenue they need to deliver services, and it is essential that GST reform is on the table.

A report from Newgate Research Community attitudes towards tax reform, commissioned by the Property Council, found that nine out of ten Australians surveyed supported tax reform which made the system simpler and fairer.

Far from being political poison, people see the GST as our fairest tax.

Our research shows that a reformed GST would pass the fairness test set by our political leaders.

Some 65% of respondents believed the GST to be fair or very fair, and only 35% as unfair, with most citing its benefit as a tax that cannot be dodged.

While there was some variation, this fairness rating was the majority view regardless of the respondent's gender, age, state, voting intention or property tenure.

The research also shows that people think it is inevitable that the GST will go up. When asked what they believed would happen over the next decade, almost three quarters (72%) said the GST will increase.

Strikingly, only 2% believed it would definitely not go up and just 6% that it would probably not go up. For the public, this is almost a done deal.

Getting rid of stamp duty needs to be a top priority of every government in the country. It has the highest costs to economic growth and living standards.

Treasury’s own modelling shows that Australia’s economic welfare is reduced by 73 cents for every dollar of stamp duty raised, which is 50% worse than company tax and three and a half times worse than income tax or the GST.

The Treasurer’s call today coincides with a release of the Grattan Institute’s Property Taxes working paper which moots the introduction of a new property tax on owner occupied housing.

We welcome the Grattan’s Institute acknowledgement that stamp duty needs to be abolished, but the idea of introducing yet another new property tax without retiring existing inefficient taxes is unfair and will unacceptable to the community.

The Grattan report conveniently leaves out stamp duty in its attempts to argue that property is undertaxed in Australia.

The industry currently pays $77 billion of taxes to all three levels of government. Treasury estimates that property specific taxes make up 9% of Australia's total tax take compared to an OECD average of just 5%. We're surprised Grattan would get this so wrong.

Furthermore the Grattan Institute report admits that they would need an extra new property tax at double the rate they proposed to fund the replacement of stamp duty.

The Property Council is happy to explore the option of a broad based low rate land tax, but the reality is that it won’t raise enough money to abolish stamp duty, it will be politically unpopular and it doesn’t do anything to fix the high land taxes on commercial and investment property.

There is absolutely no justification for a new property tax that does not offset other punitive taxes.

Changes to the GST is a practical solution to enable stamp duties to be retired to boost the economy in a way that is fair.

Ken Morrison is chief executive of Property Council of Australia. He can be contacted here.