tag:theconversation.com,2011:/africa/topics/land-tax-23045/articlesLand tax – The Conversation2023-05-24T08:09:32Ztag:theconversation.com,2011:article/2056462023-05-24T08:09:32Z2023-05-24T08:09:32ZVictoria shows Australia how to finally abolish stamp duty once and for all<figure><img src="https://images.theconversation.com/files/527936/original/file-20230524-16-jf0wl6.png?ixlib=rb-1.1.0&rect=390%2C126%2C1437%2C735&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
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<p>Victoria’s government announced it will abolish stamp duty for commercial and industrial properties and replace it with an <a href="https://cdn.theconversation.com/static_files/files/2693/vic_stamp_d.pdf">annual property tax</a>.</p>
<p>The Victorian model shows how state governments could abolish all property stamp duties once and for all – including stamp duties on homes. </p>
<h2>Stamp duty is a bad tax</h2>
<p>Originally intended to be <a href="https://www.afr.com/politics/states-defy-costello-on-tax-cuts-20070329-jdxdu">abolished</a> as part of the deal to introduce the goods and services tax back in 2000, stamp duty on commercial and industrial properties accounts for about one-fifth of all stamp duty revenues collected in Victoria. </p>
<p>They are one of the most economically <a href="https://www.treasury.nsw.gov.au/sites/default/files/2021-06/the_economic_costs_of_transfer_duty_a_literature_review.pdf">harmful</a> taxes Australia has. </p>
<p>Stamp duties on commercial and industrial properties act as a brake on new businesses, stop many businesses from shifting premises as they grow and ultimately mean we don’t use scarce urban land as efficiently as we should. </p>
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Read more:
<a href="https://theconversation.com/finding-the-losers-and-surprising-winners-from-phasing-out-stamp-duty-154935">Finding the losers (and surprising winners) from phasing out stamp duty</a>
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<p>Economists estimate that stamp duties on commercial property cost the economy between 50 cents and 60 cents for every dollar of revenue they raise – more than any other state tax. </p>
<p>So far, only South Australia has fully phased out stamp duty on commercial properties, although it never replaced it with a land tax. </p>
<p>The Australian Capital Territory is well on the way to abolishing them as part of its broader property tax reforms, which will see stamp duty replaced with a broad-based land tax for all types of property over two decades. </p>
<p>The ACT is just over <a href="https://www.treasury.act.gov.au/budget/budget-2019-20/budget-papers/act-tax-reform-program-on-track">half-way through</a> that transition.</p>
<h2>Victoria’s bold moves</h2>
<p>From July 2024, buyers of commercial and industrial properties will have the option of paying stamp duty upfront or the same amount (with interest) stretched out over a decade.</p>
<p>A decade after that purchase, the property will attract an annual land tax of 1% of the property’s unimproved land value.</p>
<p>If the new owners sell again, even within the first decade, no stamp duty will be charged and the same deadline for the introduction of the land tax will apply.</p>
<p>Land tax won’t be charged on properties bought before July 2024 until they are sold. After they have switched to land tax, they can’t switch back.</p>
<p>How quickly things transition will depend on how quickly these properties turn over, and it might take decades. </p>
<p>But once the transition is complete, the budget predicts a long-term payoff to the state economy of as much as $50 billion over some decades. </p>
<h2>Abolishing homebuyer stamp duty is the big prize</h2>
<p>Abolishing stamp duty on commercial properties is a big step forward. But the main game remains abolishing stamp duties on homes, which raise four times as much for state governments. </p>
<p>Economists hate stamp duties on homes because they discourage homeowners from moving house as their lives change. Doing so would mean having to pay stamp duty a second time.</p>
<p>It’s also unfair because it punishes younger households that move around more, while rewarding older residents who tend to stay put for decades.</p>
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Read more:
<a href="https://theconversation.com/victoria-bites-117-billion-bullet-begins-the-long-march-of-land-tax-reform-206066">Victoria bites $117 billion bullet, begins the long march of land tax reform</a>
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<p>Stamp duty even acts as a tax on divorce. It’s a big reason why more than half of divorced women who lose their home don’t buy again. Divorced women are already three times more likely to rent in retirement than married women.</p>
<p>Removing stamp duty would lead to better use of the existing housing stock: first homebuyers could buy smaller homes knowing they could more easily upgrade later, and more retirees would downsize. Past NSW Treasury calculations suggest this could result in rents and house prices falling by up to 6% in the long term.</p>
<p>In 2018, the Grattan Institute found a national shift from stamp duties to land tax would add up to <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">$17 billion per year</a> to gross domestic product.</p>
<h2>Victoria’s approach could inspire others</h2>
<p>Broader stamp duty reform has stalled. Despite the obvious benefits, only one Australian government, the ACT, has made the move from stamp duties to a broad-based property tax. </p>
<p>Adopting the ACT model – by gradually phasing down stamp duty while lifting land tax – would ensure Victoria could transition without losing revenue. </p>
<p>But it would impose land tax on those who haven’t moved homes, which would make the politics harder. </p>
<p>The former NSW Perrottet government tried to give homebuyers a choice between paying stamp duty and land tax as a way around forcing existing home buyers to start paying land tax, but the reform fell flat once the true cost to the state budget became apparent. </p>
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Read more:
<a href="https://theconversation.com/axing-stamp-duty-is-a-great-idea-but-nsw-is-doing-it-wrong-150629">Axing stamp duty is a great idea, but NSW is doing it wrong</a>
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<p>Victoria’s model provides an alternative for weaning homes off stamp duty. No one would be forced to pay land tax until they moved, which would make the politics much easier. But it would take longer to reap the economic benefits than the ACT’s approach. </p>
<p>It would still cost the budget money as the government would collect less in land tax than it would from the stamp duty during the transition. But the budgetary cost would be much less than adopting the failed NSW model, especially if the <a href="https://www.smh.com.au/national/an-offer-from-perrottet-the-federal-treasurer-can-t-refuse-if-he-wants-to-make-us-all-richer-20220606-p5arbc.html">federal government</a> committed to filling part of the (smaller) revenue hole.</p>
<p>Ditching stamp duty for land tax for all properties could be a game-changer across Australia. The ACT showed us one path. Victoria is opening up another.</p><img src="https://counter.theconversation.com/content/205646/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brendan Coates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What will work for commercial and industrial properties ought to work for homes.Brendan Coates, Program Director, Economic Policy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2026302023-03-28T23:13:31Z2023-03-28T23:13:31ZInheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year<figure><img src="https://images.theconversation.com/files/517641/original/file-20230327-485-73myrj.png?ixlib=rb-1.1.0&rect=143%2C395%2C3808%2C1814&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.</p>
<p>The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 <a href="https://theconversation.com/tax-breaks-cost-a-reported-250-billion-but-handle-these-new-figures-with-care-200819">Tax Expenditures and Insights Statement</a>) and reply as if political constraints were not a problem.</p>
<p>The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and <a href="https://www.oecd.org/">OECD</a> officials, and a former member of the Reserve Bank board.</p>
<p>Asked to choose tax measures on the basis of <a href="https://www.investopedia.com/terms/e/economic_efficiency.asp">efficiency</a> – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.</p>
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<p>International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.</p>
<p>This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.</p>
<p>Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014. </p>
<p>Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.</p>
<p>Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.</p>
<h2>Negative gearing an ‘easy win’</h2>
<p>A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at <a href="https://treasury.gov.au/publication/p2023-370286">$24.4 billion per year</a>.</p>
<p>Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.</p>
<p>University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.</p>
<p>Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.</p>
<p>One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.</p>
<h2>‘Unfair’ super concessions and tax-free inheritances</h2>
<p>Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.</p>
<p>None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.</p>
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<p>Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions. </p>
<p>Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February. </p>
<p>The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice. </p>
<h2>Missing fixes: Stage 3 and a carbon tax</h2>
<p>Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated “<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3</a>” tax cuts for high earners, due to take effect in 2024.</p>
<p>The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years. </p>
<p>Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.</p>
<p>Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.</p>
<p>Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion. </p>
<p>If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.</p>
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<p><em>Individual responses:</em></p>
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Read more:
<a href="https://theconversation.com/how-can-australia-pay-368-billion-for-new-submarines-some-of-the-money-will-be-created-from-thin-air-202150">How can Australia pay $368 billion for new submarines? Some of the money will be created from thin air</a>
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<img src="https://counter.theconversation.com/content/202630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked to choose the fairest ways to raise billions, half of the economists backed introducing inheritance taxes. Around a third chose winding back super tax concessions and increased resource taxes.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1973982023-01-12T19:17:21Z2023-01-12T19:17:21ZStamp duty isn’t going anywhere until we agree on what will replace it<figure><img src="https://images.theconversation.com/files/504155/original/file-20230112-22-hy66br.png?ixlib=rb-1.1.0&rect=492%2C258%2C3280%2C1455&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Nearly all economists and most politicians seem to agree stamp duty is a bad tax. But nearly all state and territory governments rely on it to keep the lights on.</p>
<p>It’s a bad tax because it taxes homeowners every time they move, merely because they have moved. At A$40,000 per move on a median-priced home in Sydney or Melbourne, it’s enough to dissuade people from moving for a better job or to a bigger or smaller home when they have children or their children move out. </p>
<p>It’s even a de facto tax on divorce. When a family home is sold to allow assets to be split, each member of the separating couple needs to pay stamp duty to purchase again. It’s a big reason more than half of <a href="https://grattan.edu.au/news/levelling-the-playing-field-its-time-for-a-national-shared-equity-scheme/">divorced women</a> who lose their homes don’t buy again within a decade. </p>
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Read more:
<a href="https://theconversation.com/axing-stamp-duty-is-a-great-idea-but-nsw-is-doing-it-wrong-150629">Axing stamp duty is a great idea, but NSW is doing it wrong</a>
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<p>And it’s unfair. Stamp duty hits most the younger households that move around the most. It leaves alone the older residents who stay put.</p>
<p>New modelling by the Centre for Policy Studies at Victoria University finds abolishing stamp duty and replacing the revenue lost with land tax would put downward pressure on the price paid by buyers of about <a href="https://theconversation.com/swapping-stamp-duty-for-land-tax-would-push-down-house-prices-but-push-up-apartment-prices-new-modelling-finds-184381">4.7%</a>, and downward pressure on the price received by sellers of about 0.1%.</p>
<p>In 2018 the Grattan Institute found a national shift from stamp duties to land tax would add up to <a href="https://grattan.edu.au/report/state-orange-book-2018/">$17 billion per year</a> to gross domestic product.</p>
<h2>Most states aren’t really removing stamp duty</h2>
<p>So far only one state or territory – the <a href="https://www.revenue.act.gov.au/tax-reform">Australian Capital Territory</a> – has really taken the plunge. Others are merely tinkering with stamp duty in order to create what amounts to a de-facto first home-buyer grant. </p>
<p>The ACT is halfway through a genuine switchover designed to take 20 years.</p>
<p>In Victoria, the Andrews government is merely expanding a system of exemptions for eligible first home-buyers already available. NSW, Queensland, Western Australia and Tasmania also offer such exemptions. </p>
<p>Now in the lead-up to the March election, the NSW government and opposition are <a href="https://www.smh.com.au/politics/nsw/nsw-labor-to-abolish-stamp-duty-for-first-home-buyers-20230108-p5cb40.html">one-upping</a> each other with competing policies to offer even more first home-buyers a way to avoid paying stamp duty. </p>
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Read more:
<a href="https://theconversation.com/stamp-duty-is-an-economic-drag-heres-how-to-move-to-a-better-system-141777">Stamp duty is an economic drag. Here's how to move to a better system</a>
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<p>The NSW Labor opposition pledged to abolish stamp duty altogether for first home buyers purchasing properties worth up to <a href="https://www.abc.net.au/news/2023-01-09/nsw-labor-stamp-duty-policy-for-2023-election/101835720">$800,000</a> — expanding the current exemption which is for homes worth up to $650,000. First home buyers purchasing more expensive homes worth up to $1 million will be offered a discount. </p>
<p>The Coalition government has already legislated to offer first home buyers the option of paying an annual land tax rather than stamp duty if they buy a property worth up to <a href="https://www.nsw.gov.au/initiative/first-home-buyer-choice">$1.5 million</a>.</p>
<p>By targeting these exemptions to first home-buyers, both sides of NSW politics and other state governments are undercutting the key benefit of removing stamp duty: removing the tax on moving. </p>
<p>Most of these policies – including the two offered in NSW – amount to little more than first home buyers’ grants. History shows such grants <a href="https://www.pc.gov.au/inquiries/completed/housing-homelessness/report/housing-homelessness.pdf">tend to push up prices</a>. </p>
<h2>Actually axing stamp duty means replacing it with something</h2>
<p>Stamp duty is critical to helping state governments pay the bills. All states or territories, except the ACT, use them to collect at least one-fifth of their tax revenue. </p>
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<span class="caption">Does not include Commonwealth grants.</span>
<span class="attribution"><span class="source">Grattan analysis of each state or territory's most recent budget</span></span>
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<p>These revenues pay to keep our hospitals running and schools open. </p>
<p>NSW expects to collect around <a href="https://images.theconversation.com/files/504158/original/file-20230112-27936-b31ru3.PNG">$10 billion</a> in stamp duty this financial year alone.</p>
<p>In contrast, Labor’s NSW giveaway for first-home buyers will cost <a href="https://www.abc.net.au/news/2023-01-09/nsw-labor-stamp-duty-policy-for-2023-election/101835720">$722 million</a> in its first three years. The Coalition’s will cost <a href="https://www.treasury.nsw.gov.au/sites/default/files/2022-11/LANDMARK-FIRST-HOME-BUYER-REFORM-NOW-UP-AND-RUNNING_0.pdf">$728 million</a> over four years.</p>
<p>To really get rid of stamp duty altogether, we need to replace it with something else. Land tax is a good candidate because it <a href="https://theconversation.com/finding-the-losers-and-surprising-winners-from-phasing-out-stamp-duty-154935">doesn’t distort people’s decisions</a>.</p>
<p>Whereas homeowners can avoid paying stamp duty again by refusing to move, land can’t be moved, meaning land tax can’t be avoided.</p>
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Read more:
<a href="https://theconversation.com/killing-off-stamp-duty-a-good-policy-that-no-politician-supports-38536">Killing off stamp duty: a good policy that no politician supports</a>
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<p>The NSW Coalition government started with <a href="https://www.afr.com/policy/economy/perrottet-grilled-over-inherently-terrible-stamp-duty-20211104-p5960p">bolder plans</a> for a meaningful transition, until a <a href="https://www.abc.net.au/news/2022-11-10/stamp-duty-legislation-passes-nsw-parliament/101640982">scare campaign</a> and the opposition from Labor and the Greens forced it to wind it back.</p>
<p>This has left NSW Labor in the unfortunate position of being against the bad tax (stamp duty) but also against the good tax that would have to replace it: land tax. </p>
<p>Other options – such as increasing the goods and services tax to cover the cost of abolishing stamp duty – appear even less likely.</p>
<p>NSW is stuck in a quagmire in which stamp duty seems here to stay. </p>
<h2>Only the ACT is showing the way</h2>
<p>The Australian Capital Territory’s approach of slowly reducing one tax while slowly increasing the other shows it can be done.</p>
<p>After announcing the switchover in 2012, the then treasurer Andrew Barr was reelected as chief minister in 2016 and in 2020.</p>
<p>He is ahead in the race to actually remove stamp duty by replacing it with something. He is showing the rest of Australia it needn’t be afraid.</p><img src="https://counter.theconversation.com/content/197398/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute's board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Brendan Coates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Neither NSW Labor nor the NSW Coalition is actually proposing to axe stamp duty. Neither are any of the other states or territories, apart from the ACT.Joey Moloney, Deputy Program Director, Economic Policy, Grattan InstituteBrendan Coates, Program Director, Economic Policy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1843812022-06-20T01:26:59Z2022-06-20T01:26:59ZSwapping stamp duty for land tax would push down house prices but push up apartment prices, new modelling finds<figure><img src="https://images.theconversation.com/files/469436/original/file-20220617-11-hc6qtz.png?ixlib=rb-1.1.0&rect=5%2C315%2C2778%2C1284&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>In Tuesday’s budget, NSW will announce a switch from stamp duty to <a href="https://www.smh.com.au/politics/nsw/nsw-to-phase-out-stamp-duty-introduce-property-tax-20220612-p5at3p.html">land tax</a>. </p>
<p>It will become the second Australian jurisdiction to do so, with the ACT halfway through a <a href="https://www.treasury.act.gov.au/__data/assets/pdf_file/0009/1618407/cops-final-report.pdf">20-year</a> switchover.</p>
<p>Homebuyers who accept the offer will be taxed annually on the value of their land, instead of hit with an upfront fee (that averaged $50,000 for Sydney in 2018) when they buy.</p>
<p>Once they have accepted, their property will be out of the stamp duty system and subject only to land tax for future owners.</p>
<p>It’s become conventional wisdom to say that such a revenue-neutral switch would <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-10/FFR%20Final%20Report%20-%20200828%20%281%29.pdf">boost productivity</a>. </p>
<p>Why? Moving house sets in motion a chain of transactions: residents engage lawyers to transfer titles, real estate agents to manage the property sale, removalists to transport possessions, and so on. </p>
<p>Stamp duties compound these costs, by adding a significant, additional layer of taxation, which in some states makes up 80% of the total cost of moving house. </p>
<p>Land tax, in contrast, is one of the least-damaging taxes. It encourages land owners to put land to its <a href="https://treasury.gov.au/publication/understanding-the-economy-wide-efficiency-and-incidence-of-major-australian-taxes">highest-value use</a>.</p>
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Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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<p>In a landmark <a href="https://www.copsmodels.com/ftp/workpapr/g-330.pdf">modelling exercise</a> completed this month, my team at the Victoria University Centre of Policy Studies finds that the productivity gains are large by the standards of tax swaps.</p>
<p>After 20 years, replacing stamp duty with a land tax would boost national income by A$0.30 for each dollar of revenue swapped, or up to $720 per household if implemented Australia-wide, about 0.34% of annual gross domestic product. </p>
<p>Of greater interest for homeowners and buyers is what it would do to prices. </p>
<h2>Houses versus apartments</h2>
<p>Broadly, we find that the switch would put downward pressure on prices, but not for every type of home.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469437/original/file-20220617-12-d2jmze.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Apartments are different.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>Across the market as a whole, we expect downward pressure on the price paid by buyers of about 4.7%, and downward pressure on the price received by sellers of about 0.1%.</p>
<p>But for houses, we expect much stronger downward pressure than the average suggests. </p>
<p>We expect the price paid by house buyers to fall by about 7.6%, and the price received by sellers to fall 3%.</p>
<p>Interestingly, for apartments we expect movements in the other direction, pushing up the price paid by buyers by 2%, and pushing up the price received by sellers by 6.4%.</p>
<h2>What’s so different about apartments?</h2>
<p>Why would the switch put downward pressure on the price of houses but upward pressure on the price of apartments?</p>
<p>It is because of how two offsetting effects play out. </p>
<p>One is that higher land taxes depress land prices. Buyers who know they will be lumbered with future bills find their purchases less valuable. This effect is much bigger on house prices than apartment prices, because houses occupy more land on average.</p>
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Read more:
<a href="https://theconversation.com/axing-stamp-duty-is-a-great-idea-but-nsw-is-doing-it-wrong-150629">Axing stamp duty is a great idea, but NSW is doing it wrong</a>
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<p>The other effect is that removing stamp duty not only removes an impost on the current buyer, but also removes an impost that will have to be paid when the current buyer sells, and when the subsequent buyer sells, and so on, making resale more valuable to the current buyer than it would have been.</p>
<p>For properties that aren’t turned over often this effect isn’t very important, but for properties that are turned over frequently, it becomes significant.</p>
<p>Apartments are turned over twice as frequently as houses, meaning that for apartments the upward effect on prices from removing stamp duty overwhelms the downward effect from imposing land tax.</p>
<h2>Much depends on exactly what’s proposed</h2>
<p>It would be possible to lessen this upward pressure on apartment prices by imposing higher land taxes on higher density housing, an idea canvassed by the <a href="https://treasury.gov.au/review/the-australias-future-tax-system-review/publications">Henry Tax Review</a> in 2010. Planning and zoning rules could also play a role. </p>
<p>Other policy design decisions could have other effects on prices. Our modelling is based on an immediate swap of stamp duty for land tax. </p>
<p>This is not the same as the NSW government’s opt-in proposal, which could have different price consequences to the policy we modelled. </p>
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Read more:
<a href="https://theconversation.com/finding-the-losers-and-surprising-winners-from-phasing-out-stamp-duty-154935">Finding the losers (and surprising winners) from phasing out stamp duty</a>
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<p>The NSW government is also reported to be considering excluding the most <a href="https://www.smh.com.au/politics/federal/stamp-duty-move-puts-pressure-on-other-states-20220613-p5ataj.html">expensive 20%</a> of properties from the switchover, so it can continue to collect stamp duties on high-value transfers. </p>
<p>In future work we plan to extend our modelling beyond a simple swap of stamp duty and land tax.</p><img src="https://counter.theconversation.com/content/184381/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Economists have long advocated replacing stamp duty with land tax. We find that the implications for housing prices depends on whether you own a house or an apartment.Jason Nassios, Associate Professor, Centre of Policy Studies, Victoria UniversityJames Giesecke, Professor, Centre of Policy Studies and the Impact Project, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1613532021-05-23T20:15:24Z2021-05-23T20:15:24ZThe lesson for Australia out of Victoria’s property tax hikes: two out of three ain’t bad<p>Victorian treasurer Tim Pallas’s three-pronged strategy to raise an extra <a href="https://www.premier.vic.gov.au/contributing-fair-share-stronger-victoria">A$2.7 billion in property taxes</a> over the next four years is a case of two out of three ain’t bad.</p>
<h2>Land tax ✅</h2>
<p>First, Pallas will raise $1.5 billion over four years by lifting land taxes on landholdings worth between $1.8 and $3 million by 0.25%, and by 0.3 percentage points on landholdings worth more than $3 million.</p>
<p>This is a good move. Taxes levied on the value of landholdings are among the <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">most efficient states can impose</a>. And land taxes offer a more sustainable and less-volatile tax base than stamp duties on property transactions.</p>
<h2>Windfall gains levy ✅</h2>
<p>Second, developers and landowners who reap windfall gains when their property is rezoned will be hit with a 50% levy if the gain is $500,000 or more, with the tax phasing in from windfalls above $100,000. The new levy will not apply to growth-zone land where developers already pay the <a href="https://www.sro.vic.gov.au/growth-areas-infrastructure-contribution">Growth Areas Infrastructure Contribution </a>charge.</p>
<p>Again, this is a good move. It should reduce incentives for <a href="https://www.theage.com.au/politics/victoria/how-money-talks-in-victorian-politics-five-lessons-from-the-casey-corruption-scandal-20201218-p56oo3.html">corruption</a> when planning applications are decided. </p>
<p>As a tax, collecting unearned windfall gains is extraordinarily efficient, so efficient it shouldn’t even be called a tax but a charge for a change in allowable land use, which is <a href="https://theconversation.com/our-states-are-crying-poor-they-wouldnt-if-they-charged-for-rezoning-142838">what it is</a>.</p>
<p>The new re-zoning charge won’t raise much in the short term: just $124 million over four years. </p>
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Read more:
<a href="https://theconversation.com/our-states-are-crying-poor-they-wouldnt-if-they-charged-for-rezoning-142838">Our states are crying poor. They wouldn't if they charged for rezoning</a>
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<p>But the next time there is a major rezoning — think of the bonanzas that have flowed to land holders from previous rezonings in <a href="https://www.theage.com.au/national/victoria/report-slams-matthew-guy-on-rezoning-of-fishermans-bend-20151019-gkcyrv.html">Melbourne’s Fisherman’s Bend</a> and the Docklands — it will deliver taxpayers hundreds of millions if not billions.</p>
<p>The property lobby <a href="https://www.afr.com/property/commercial/victorian-windfall-tax-will-hit-urban-infill-developers-say-20210516-p57sbh">has been quick to claim</a> that charging for rezoning windfalls will deter higher-density development in Melbourne, or increase prices. Both claims should be ignored.</p>
<p>Capturing a share of rezoning windfalls won’t deter developers. Instead it could make it easier to solve Melbourne’s housing crisis while reducing incentives for corruption in planning decisions.</p>
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<a href="https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/402219/original/file-20210523-19-1cgzqk4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Tim Pallas, making Victorian developers pay for some of their rezoning windfalls.</span>
<span class="attribution"><span class="source">JAMES ROSS/AAP</span></span>
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<p>Planning rules make it hard to build more housing in inner suburbs. Zoning for higher density is necessary, but unpopular. Local residents partly object because they think developers are getting a free kick. </p>
<p>The Victorian treasurer’s decision to make the winners pay for some of their winnings will make the process fairer and less divisive.</p>
<p>It’s a myth that charges for changes in land use raise home prices. Australian evidence suggests those lucky enough to own land before it is rezoned <a href="https://www.sciencedirect.com/science/article/abs/pii/S0264275117301051">pay the charges</a> rather than pass them on to eventual homebuyers, which might be why they object.</p>
<p>And future developers will pay less for their land, because the expectation of windfall gains won’t be built into the price. </p>
<p>The ACT Government has charged <a href="https://www.planning.act.gov.au/leasing-and-titles/varying-crown-leases/lease-variation-charge">75%</a> for land value uplift for three decades without scaring away developers.</p>
<p>But the third prong of the Pallas plan — lifting stamp duty from 5.5% to 6.5% on properties that sell for more than $2 million — is a step in the wrong direction.</p>
<h2>More stamp duty ❌</h2>
<p>Stamp duties are among the most <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">inefficient</a> and inequitable taxes Australia has. </p>
<p>They discourage people from moving to housing and cities that better suit their needs, and they are inequitable discourage people from moving to better jobs. </p>
<p>And the revenue they provide is volatile: any slowdown in property sales — as happened during COVID took hold – punches a big hole in state budgets.</p>
<p>Few Victorians will be affected by this tax hike: less than 5% of all Melbourne homes (and just 0.5% of regional Victorian homes) went for $2 million or more last year, according to <a href="https://twitter.com/timlawless/status/1394500338846081026">Corelogic</a>. </p>
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Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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<p>Someone buying a $2.5 million home will pay just an extra $5,000 in stamp duty. </p>
<p>But Pallas should be looking to replace stamp duty with broad-based land taxes, as <a href="https://www.treasury.nsw.gov.au/property-tax-proposal">NSW</a> is planning to do. </p>
<p>Tax hikes are rarely popular. But they will become increasingly necessary as states try to repair their budgets after the COVID crisis. </p>
<p>In the quest for a better tax system, Pallas has just taken two steps forward, and one step back.</p>
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Read more:
<a href="https://theconversation.com/like-a-high-wire-act-victorias-budget-is-a-mix-of-hard-work-luck-and-optical-illusion-161103">Like a high-wire act, Victoria's budget is a mix of hard work, luck and optical illusion</a>
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<img src="https://counter.theconversation.com/content/161353/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website. </span></em></p>Charging for rezoning is a move other states should follow, as are land taxes. Stamp duty hikes, not so much.Brendan Coates, Program Director, Household Finances, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1549352021-02-10T19:07:10Z2021-02-10T19:07:10ZFinding the losers (and surprising winners) from phasing out stamp duty<figure><img src="https://images.theconversation.com/files/383467/original/file-20210210-19-4ud16z.jpg?ixlib=rb-1.1.0&rect=1263%2C377%2C2419%2C1329&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">lahphoto/Shutterstock</span></span></figcaption></figure><p>More than ever as we emerge from the crisis we are going to have to get the most out of our economy.</p>
<p>Swapping stamp duty for land tax as the <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">ACT government</a> is doing (over 20 years) and the <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-11/NSW%20TSY%20TF%20-%20Glossy.pdf">NSW government</a> is planning (using an opt-in arrangement), is one of the best ways the tax system can help.</p>
<p>This graph from the federal treasury’s 2015 <a href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">tax discussion paper</a> makes the point.</p>
<p>It says the “marginal excess burden” (damage) done by real estate stamp duty amounts to 70 cents for each dollar raised.</p>
<p>It discourages people and businesses from changing addresses as often as they should, meaning workers live further away from their work than they would and are reluctant to move to where there is better work.</p>
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<a href="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Tax discussion paper, Australian Treasury March 2015</a></span>
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<p>In contrast, treasury found the marginal excess burden of land tax was negative. Land tax makes sure land was used for its most useful purpose and not left idle.</p>
<p>Efficiency-wise it makes sense to swap one for the other, but as with all changes there will be winners and losers, some of them surprising.</p>
<p>In our <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3760893">just-published study</a>, we use real-world data on living arrangements from the Melbourne Institute’s <a href="https://melbourneinstitute.unimelb.edu.au/hilda">Household, Income and Labour Dynamics in Australia</a> survey and data on house
prices and stamp duty rates from the Real Estate Institute Australia in an attempt to work out who the winners and losers will be.</p>
<h2>Good for the young, and the old</h2>
<p>We find that overall the swap should reduce the purchase price for home buyers, increase the sale price for sellers, increase the total number of transactions and reduce the degree of mismatch in housing.</p>
<p>It should also increase the rate of home ownership.</p>
<p><strong>Young adults</strong>, particularly those who are currently having difficulty saving for a deposit would be better off.</p>
<p><strong>Current homeowners</strong> would generally be worse off.</p>
<p><strong>Renters</strong> would benefit because they are currently excluded from home ownership.</p>
<p><strong>Older landlords</strong>, perhaps surprisingly, would also benefit. In many cases the increase in the value of their houses would outweigh the cost of the land tax.</p>
<p>Our findings raise a challenge for governments.</p>
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Read more:
<a href="https://theconversation.com/axing-stamp-duty-is-a-great-idea-but-nsw-is-doing-it-wrong-150629">Axing stamp duty is a great idea, but NSW is doing it wrong</a>
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<p>In the long run the swap would improve the working of the economy, but in the short run it will hurt many current voters.</p>
<p>A gradual transition – either through a very long phase in (of the kind adopted by the ACT) or by allowing households to select into different tax systems (as NSW is planning) would help make the switch more palatable.</p>
<p>But the sooner we start, the better.</p><img src="https://counter.theconversation.com/content/154935/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Homebuyers would benefit from a stamp duty for land tax swap, and so would some homeowners.Lawrence Uren, Senior Lecturer in Economics, The University of MelbourneShuyun May Li, Senior Lecturer in Economics, The University of MelbourneYunho Cho, Assistant Professor, Institute for Economic and Social Research, Jinan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1506292020-11-23T19:04:28Z2020-11-23T19:04:28ZAxing stamp duty is a great idea, but NSW is doing it wrong<figure><img src="https://images.theconversation.com/files/370762/original/file-20201123-23-9dhka0.jpg?ixlib=rb-1.1.0&rect=463%2C240%2C3391%2C1590&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">jannoon028/Shutterstock</span></span></figcaption></figure><p>In tax as in many endeavours, it’s easy to work out how things should be; harder to work out how to get there.</p>
<p>In NSW, Treasurer Dominic Perrottet wants to replace the one-off stamp duty on real estate transactions with an annual <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-11/NSW%20TSY%20TF%20-%20Glossy.pdf">land tax</a>. </p>
<p>In the long run, this one single reform could produce the biggest possible gains of any tax reform, state or federal.</p>
<p>This graph from the federal treasury’s 2015 <a href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">tax discussion paper</a> makes the point.</p>
<p>It says the “marginal excess burden” (damage) done by real estate conveyancing taxes amounts to 70 cents for each dollar raised.</p>
<p>It means people and businesses change addresses less often than they should. Households live further away from their work than they would like to, are reluctant to move to where there is better work, and spend money extending houses instead of moving to better ones. </p>
<p>Businesses resist changing property location and type when changes in markets and costs suggest they should.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/370724/original/file-20201123-19-16bujkx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Tax discussion paper, Australian Treasury March 2015</a></span>
</figcaption>
</figure>
<p>In contrast, the treasury found the marginal excess burden of land tax was negative. By that it means every dollar raised actually makes things better off by making land more likely to be used for its best purpose and making land less likely to be not used at all.</p>
<p>Swapping the worst tax the treasury modelled for the best tax it modelled ought to have a huge economic payoff for use of property, for productivity and for living standards.</p>
<p>It’d also be fairer.</p>
<p>The NSW <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-10/FFR%20Final%20Report%20-%20200828%20%281%29.pdf">Thodey Review</a> of federal financial relations commissioned by Treasurer Perrottet notes that 26% of owner-occupiers have remained in the same property for at least 20 years.</p>
<p>Most of these long-term same property owners have benefited “not only from the services provided by the state over that time, but also from a once-in-a-generation land price windfall”.</p>
<blockquote>
<p>In exchange for these gains, they have contributed very little towards essential services and critical infrastructure via property taxation. Others who have moved more often than the average to find a job, to be closer to schools, or to match housing size to changes in their family situation have picked up the tab.</p>
</blockquote>
<p>Thodey also identifies other reasons for making the switch. Land tax revenue is more stable and predictable than revenue that soars and dives at times when people are buying or are not buying properties.</p>
<h2>How you get there matters</h2>
<p>The Australian Capital Territory is well on the way.</p>
<p>In 2012-13 it began a <a href="https://www.allhomes.com.au/news/cbr-how-act-home-owners-are-affected-by-the-act-tax-reform-program-new-report-982274/">20-year transition</a>. Stamp duty and insurance duty are being wound back (for everyone) and replaced by <a href="https://apps.treasury.act.gov.au/__data/assets/pdf_file/0003/1618410/revenue-neutrality-paper-in-the-act-government.pdf">increases to general rates on land</a>. </p>
<p>The transition is roughly revenue-neutral.</p>
<p>NSW is proposing a different approach. It is considering asking new buyers to “<a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-11/NSW%20Treasury%20property%20tax%20proposal%20Consultation%20Paper.pdf">opt in</a>” to an annual land tax in return for escaping stamp duty. Once a buyer has opted in, future buyers of that property won’t be able to opt out. They will pay land tax instead of stamp duty. </p>
<p>It’ll mean no property owner, new or old, need be a loser in the first instance.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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</p>
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<p>But it will stretch out the transition and involve very large reductions in revenue for years to come, with smaller but still-substantial losses over decades.</p>
<p>As an illustration, assume that in year one, rather than paying $100 of stamp duty, the buyer chooses to pay a much smaller annual land tax. </p>
<h2>NSW is going the long way</h2>
<p>On average about 5% of properties change hands each year, meaning on average each is transferred once every 20 years. That means that to be revenue neutral in the long term the annual land tax should be set at 5% of the stamp duty.</p>
<p>If all the buyers in the first year switch over to land tax, the government will lose 95% of the money it would have got from stamp duty in that year.</p>
<p>With the passing of time and a larger share of owners paying land tax the shortfall will get smaller. But even after a decade, it might be as much as 50%.</p>
<h2>Some buyers will never opt-in</h2>
<p>And the voluntary opt in will give buyers who expect to hold a property for longer than average, for more than 20 years, an incentive to turn down the offer of land tax and pay (the lesser) stamp duty as before; while those who expect a short stay will opt for the (lesser) land tax. </p>
<p>This entirely rational behaviour will further reduce government revenue, aggravate the inequity of the system we’ve got, lock some owners into the properties they already own in order to avoid paying for government services, and postpone the benefits of moving to a system in which tax doesn’t distort the use of land.</p>
<p>It’s easy to see why Perrottet has gone for a voluntary switchover.</p>
<h2>There are better ways to avoid double taxation</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/370759/original/file-20201123-15-1s63grs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The ACT Labor government has just won its sixth consecutive election.</span>
<span class="attribution"><span class="source">LUKAS COCH/AAP</span></span>
</figcaption>
</figure>
<p>Without some sort of concession, recent buyers would find themselves taxed twice, once through stamp duty and then again through annual land taxes.</p>
<p>The ACT’s 20-year transition is one way to get around the problem. </p>
<p>Despite concerns, it has <a href="https://grattan.edu.au/submissions/nsw-should-swap-stamp-duties-for-a-broad-based-property-tax/">proved popular enough</a>. </p>
<p>Eight years in, the ACT Labor government has just won it’s <a href="https://www.news.com.au/national/nsw-act/politics/act-votes-will-labor-secure-a-sixth-term/news-story/fb16a95da53cb48cc31f1591b54abd66">sixth consecutive election</a>.</p>
<p>A quicker way of realising the gains from switching while reducing double taxation would be to introduce land tax immediately and give recent buyers a partial credit for the stamp duty they’ve paid. </p>
<p>As an example, stamp duty paid in the past one, two, three, four and five years could receive a credit of 100%, 80%, 60%, 40% and 20%, respectively. </p>
<p>It would cost revenue over the transition period, but not as much as the opt in arrangement proposed by the NSW treasurer, and after that short period the switch would be revenue-neutral. Importantly, it would reap the full efficiency benefits from day one, and ensure everyone paid the tax they should.</p><img src="https://counter.theconversation.com/content/150629/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn was a member of the Federal Financial Relations Review appointed by the NSW Treasurer in 2019 to consider budget reform options, including state property taxation.</span></em></p>Its “opt-in” proposal means some homeowners will never switch over and will never pay land tax.John Freebairn, Professor, Department of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1461862020-09-15T19:52:54Z2020-09-15T19:52:54ZTasmania’s tax system is broken: here are three ways to fix it<figure><img src="https://images.theconversation.com/files/358052/original/file-20200915-24-8eavaz.jpg?ixlib=rb-1.1.0&rect=1341%2C341%2C2739%2C1553&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">SevenMaps/Shutterstock</span></span></figcaption></figure><p>For two decades now, meaningful tax reform has proved elusive. </p>
<p>At the federal level, there hasn’t been any comprehensive reform since the Howard government’s <a href="https://treasury.gov.au/publication/economic-roundup-winter-2006/a-brief-history-of-australias-tax-system">New Tax System of 2000</a>, the one that brought in the goods and services tax.</p>
<p>It’s much the same for the states. </p>
<p>With the exception of the reforms that accompanied the introduction of the GST in 2000, state tax systems haven’t changed much since the 1970s, which began with the transfer of payroll tax from the Commonwealth to the states, and ended with the abolition of death duties.</p>
<p>For their part, state governments have spent most of the following four decades narrowing the bases of the few taxes over which they do have control, in order either to curry favour with important groups of voters such as small business people and home owners, or to compete with other states to attract employers.</p>
<p>Australia’s two largest states have become increasingly reliant on a tax uniformly condemned as a “<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">bad tax</a>” – stamp duty on the transfer of land. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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<p>The next two largest states have ridden booms in royalties from mining and gas which have, for the most part, allowed them to avoid the need for even thinking about reforming their taxes.</p>
<p>Only in the Australian Capital Territory has there been a genuine (so far successful) effort to undertake a reform that enjoys almost unanimous support among economists, the replacement of stamp duties on land transfers with a <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">broadly-based land tax</a>. </p>
<p>The fact that the ACT government is also in effect the Canberra city council has allowed it to accomplish this by raising rates rather than breaking the taboo of imposing land tax on the “family home”.</p>
<h2>Tasmania specialises in bad taxes, and the GST</h2>
<p>The Tasmanian government raises less from its own resources (taxes, royalties, user charges and dividends) than any other jurisdiction except the Northern Territory. </p>
<p>That’s largely because, as identified by the <a href="https://www.cgc.gov.au/sites/default/files/tas_summary.pdf">Commonwealth Grants Commission</a> in its annual reviews, Tasmania’s revenue-raising capacity is less than that of any other state or territory, although it also partly reflects decisions by successive Tasmanian governments of both political persuasions to raise less than they could.</p>
<p>Perhaps because Tasmania has been able to rely on GST allocations and other grants from the Commonwealth, there have been no serious conversations about its tax system since a tri-partisan parliamentary inquiry was <a href="https://www.theadvocate.com.au/story/698684/review-of-state-taxes-suspended/?cs=87">abruptly terminated</a> almost nine years ago.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/our-states-are-crying-poor-they-wouldnt-if-they-charged-for-rezoning-142838">Our states are crying poor. They wouldn't if they charged for rezoning</a>
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<hr>
<p>Since then, Tasmania’s political parties have been more anxious to make commitments about what they would not do, than to outline plans for what was needed.</p>
<p>That complacency is likely to be challenged by the abrupt decline in revenue from the goods and services tax as a result of the current recession, as well as by its longer-term decline as a share of GDP for reasons recently identified by the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports">Parliamentary Budget Office</a>. </p>
<p>The collapse in GST revenue will hurt Tasmania’s budget more than that of any other state or territory (other than the Northern Territory).</p>
<hr>
<p><strong>Goods and services tax revenue as a proportion of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Per cent of gross domestic product.</span>
<span class="attribution"><a class="source" href="https://www.aph.gov.au/-/media/05_About_Parliament/54_Parliamentary_Depts/548_Parliamentary_Budget_Office/Reports/2020-21/Structural_trends_in_GST/Structural_trends_in_GST_-_PDF.pdf?la=en&hash=FF8291FA10365CC45C88BC2EF94F109D5378786F">Parliamentary Budget Office</a></span>
</figcaption>
</figure>
<hr>
<h2>There’s a way out</h2>
<p>The report I’ve written for The Australia Institute published this morning entitled <a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">Reforming Tasmania’s state tax system: Some options</a> notes that Tasmania gets a higher proportion of its total state tax take from “bad taxes” (stamp duty on land transfers, and taxes on insurance premiums) than any state or territory except Victoria.</p>
<p>It gets a smaller proportion of its tax take from what are generally thought to be “good taxes” (payroll tax and land tax) than any state or territory except Queensland.</p>
<p>It proposes three reforms which can be implemented by a Tasmanian government without requiring a lead from the larger states.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/models-only-give-part-answer-to-real-tax-reform-54160">Models only give part answer to real tax reform</a>
</strong>
</em>
</p>
<hr>
<p>None would require financial assistance from the Commonwealth (although that would be helpful, especially with transitional arrangements, if the Commonwealth is as serious about encouraging productivity-enhancing reform as the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/4th-sir-john-downer-oration-university-adelaide">Treasurer</a> says he is).</p>
<h2>1. Land tax instead of stamp duty</h2>
<p>The first is to replace existing “conveyancing duties”, as stamp duties on the transfer of land are officially called in Tasmania, with a land tax whose base should include owner-occupied homes and “shacks”, which are currently exempt or otherwise not taxed.</p>
<p>It should be levied on individual land holdings (rather than the aggregate of them) at progressive rates on the per-square-metre value of each holding.</p>
<p>There would need to be a transitional provision, such as a credit for stamp duty paid on recently-acquired property. </p>
<p>And there would need to be a deferral provision for “asset rich, income poor” homeowners such as pensioners. Both are possible.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/ideas-for-australia-five-ideas-to-help-fix-australias-tax-system-56272">Ideas for Australia: Five ideas to help fix Australia's tax system</a>
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<p>The average residential land-owner would not have paid more in land tax under this proposal than he or she would have by way of stamp duty on the purchase of the property until he or she had lived in it for more than nine years. </p>
<p>By that time, as the recent <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">Thodey Report</a> to the NSW government points out, any reasonable interpretation of “fairness” demands owners should be paying more than they currently do.</p>
<h2>2. Proper payroll tax</h2>
<p>The second proposed reform is cutting the threshold for payroll tax to the average annual earnings of five Tasmanian employees from its current level, which is equivalent to the average annual earnings of 36 employees.</p>
<p>The extra revenue would be used to lower the rate from what is currently the second-highest in Australia to what would likely be the second-lowest, and to exempt new businesses from payroll tax altogether for the first so many years of their existence, where the number of years could be, for example, three or five.</p>
<p>This will produce howls of outrage from small businesses, a larger proportion of which are exempt from payroll tax in Tasmania than in any other state, and from others who (<a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">wrongly</a>) believe that small business is the engine room of the economy.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/358042/original/file-20200915-14-btv9pn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Small businesses are anything but the engine room of the economy.</span>
</figcaption>
</figure>
<p>My report shows that exempting small business from payroll tax has not done anything to enhance job creation, innovation or any of the other blessings commonly claimed.</p>
<p>On the contrary, Bureau of Statistics figures show that over the four years to 2018-19, during which time Tasmania’s economy in many respects out-performed the rest of Australia, small business was responsible for only <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyCatalogue/48791677FF5B2814CA256A1D0001FECD?OpenDocument">13%</a> of Tasmania’s net increase in private sector employment.</p>
<p>Big businesses (who had to pay the second-highest payroll tax in Australia) were responsible for 34%.</p>
<p>Medium-sized businesses, many of whom also had to pay the second-highest payroll tax in Australia, accounted for 52%. </p>
<p>Indeed, over the 12 years to 2018-19, employment at Tasmanian small businesses declined by 11.6% – more than double the national average – despite Tasmania having the most generous payroll tax concessions for small businesses.</p>
<p>Of course the fact that payroll tax is paid in the first instance by employers doesn’t mean that it is a “tax on jobs” any more than is the goods and services tax, which in the first instance is paid by shoppers.</p>
<p>Preferencing <em>new</em> businesses would do far more to spur entrepreneurship and to stimulate job creation and innovation than preferencing <em>small</em> ones simply because they’re small.</p>
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Read more:
<a href="https://theconversation.com/memo-to-australias-states-try-renovating-your-tax-system-before-asking-for-a-new-one-141893">Memo to Australia's states: try renovating your tax system before asking for a new one</a>
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<p>It would also cost less: which would mean the special treatment for new businesses could be more generous, if desired. </p>
<p>And since new businesses can’t prevent themselves from becoming an old businesses, other than by going out of business, there would be no perverse incentives such as those that currently result in small businesses ceasing to grow at just below the point at which they become ineligible for preferential treatment.</p>
<h2>3. Death duties on estates over $1 million</h2>
<p>The third, and probably the most controversial, proposal is the reintroduction of death duties: specifically, on estates valued at over A$1 million (which would exclude 91% of the estates granted probate by Tasmania’s Supreme Court over the past three years), at rates ranging from 5% on amounts between $1 million and $5 million, 10% on the next $5 million, and 20% on anything over $10 million (which in Tasmania has been just 10 estates, 0.1% of the total, over the past three years.</p>
<p>However, the report also proposes that people whose estates would be liable to such a tax could obtain a credit against it (a reduction) for donations to Tasmanian-based deductible gift recipients – up to the point where, if they wished, they could completely extinguish their liability. </p>
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Read more:
<a href="https://theconversation.com/house-prices-and-demographics-make-death-duties-an-idea-whose-time-has-come-114175">House prices and demographics make death duties an idea whose time has come</a>
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<p>Such an arrangement would provide a powerful incentive for philanthropy in Tasmania, as it has <a href="https://theconversation.com/philanthropy-is-funding-serious-journalism-in-the-us-it-could-work-for-australia-too-79349">in the United States</a>. </p>
<p>There will of course be predictable cries of outrage against such a proposal, not so much perhaps from those whose estates would be subject to the tax as from their children and others who hope to benefit the inheritances without sharing any of the windfall – a requirement a surprising number of Americans don’t seem to find at all objectionable. </p>
<p>No doubt opponents of such a proposal will also find it convenient to ignore the stipulation that fewer than 10% of estates would be liable for the tax, or the suggestion that estates passing to surviving spouses (though not to other people) would be exempt.</p>
<h2>This needn’t mean more tax, or less tax</h2>
<p>All or any of these proposals could be used to raise more revenue than Tasmania’s present tax system. </p>
<p>Or they could be used to raise less revenue, by a party that wanted to argue that reducing the overall state tax burden would improve Tasmania’s competitiveness.</p>
<p>My report <a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">doesn’t take a position in favour of either option</a>, instead it advocates for a fairer system.</p>
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Read more:
<a href="https://theconversation.com/rethink-inheritances-these-days-they-go-to-the-already-middle-aged-122029">Rethink inheritances. These days they go to the already middle-aged</a>
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<p>The system I propose would be more efficient in the sense of doing less to distort the choices businesses and households make as to how they allocate their capital, where they live, how often they move home and how they do other things.</p>
<p>And it would make Tasmania’s financial position less vulnerable to forces entirely beyond its control or influence.</p>
<p>Which is another way of saying it would represent real reform: something that has been sorely lacking, no less in Tasmania than anywhere else, for 20 years.</p><img src="https://counter.theconversation.com/content/146186/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The report referred to in this article was commissioned by The Australia Institute</span></em></p>Tasmania gets more of its revenue from “bad taxes” than any state or territory other than Victoria, and less from “good taxes” than anywhere other than Queensland.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1428382020-08-03T19:59:19Z2020-08-03T19:59:19ZOur states are crying poor. They wouldn’t if they charged for rezoning<figure><img src="https://images.theconversation.com/files/350755/original/file-20200803-19-1m6ah.jpg?ixlib=rb-1.1.0&rect=15%2C49%2C1379%2C630&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Google Maps</span></span></figcaption></figure><p>Throughout Australia, when land is rezoned from industrial to high-rise residential, a charge is levied to help fund the required infrastructure.</p>
<p>In NSW it is called an <a href="https://www.planning.nsw.gov.au/Policy-and-Legislation/Infrastructure/Infrastructure-Funding/Local-infrastructure-contributions-policy">infrastructure contribution</a>.</p>
<p>The NSW government is <a href="http://productivity.nsw.gov.au/infrastructure-contributions-review">reviewing it</a> in order to cut “<a href="https://www.claytonutz.com/knowledge/2019/december/nsw-planning-ahead-for-significant-changes-in-2020">red tape</a>” and “<a href="https://www.claytonutz.com/knowledge/2019/december/nsw-planning-ahead-for-significant-changes-in-2020">fix the uncertainty</a>”.</p>
<p>They are words that ought to set off alarm bells. Queensland tells us how it is likely to play out.</p>
<p>A decade ago Queensland developers complained that a similar system <a href="https://treasury.gov.au/sites/default/files/2019-03/Property-Council-of-Australia-att-2.pdf">lacked transparency</a> and was <a href="https://treasury.gov.au/sites/default/files/2019-03/Property-Council-of-Australia-att-2.pdf">not proportional to underlying infrastructure needs</a>. So the Queensland government fixed it by by requiring each council to publish a <a href="http://www.dlgrma.qld.gov.au/resources/plan/planning-reform/part-1-reform-agenda-full.pdf">standard schedule</a> of charges based on estimated infrastructure costs.</p>
<p>Problem solved. Right?</p>
<p>No, as it happens. In 2011 the Queensland Premier <a href="http://statements.qld.gov.au/Statement/Id/74359">suddenly announced</a> a cap on charges. Overnight the system was disbanded and replaced with a fixed charge statewide. </p>
<h2>Developers want lower infrastructure charges</h2>
<p>The reality was that developers didn’t just want certainty and transparency, and they weren’t particularly keen on proportionality. They wanted lower charges. </p>
<p>In Victoria the property lobby is arguing for lower charges <a href="https://udiavic.com.au/getmedia/99649dca-02e6-4045-ac18-0aee9e0342bf/Hidden-Cost-of-Housing-FINAL.pdf">directly</a>, without going through the charade about wanting less uncertainty and red tape. </p>
<p>To see the value of lower charges for developers, consider that current contributions in NSW are usually in the range of A$20,000 to A$70,000 per new apartment. </p>
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Read more:
<a href="https://theconversation.com/four-ways-we-can-clean-up-corruption-in-land-rezoning-42557">Four ways we can clean up corruption in land rezoning</a>
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<p>If a $50,000 charge was halved, for example, it would create a $2.5 million windfall for the owner of a site who developed 100 apartments. Add that up across all the sites owned by developers and it comes to billions.</p>
<h2>Yet they are enriched by rezoning</h2>
<p>It’s not as if developers can’t afford what’s charged. The moment their properties are rezoned they make much, much more. </p>
<p>Here’s an example.</p>
<p>A well-situated industrial site in Sydney’s inner west was bought for $8.5 million, rezoned high density residential, then sold again for <a href="https://theconversation.com/sydney-needs-higher-affordable-housing-targets-69207">$48.5 million</a>. The <a href="https://www.propertyobserver.com.au/finding/residential-investment/17465-unsubbed-triguboff.html">470% windfall</a> was the result of a government decision: rezoning.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=276&fit=crop&dpr=1 600w, https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=276&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=276&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=347&fit=crop&dpr=1 754w, https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=347&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/350746/original/file-20200803-25-1o3oumu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=347&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The rezoned site of the Lewisham Estates in Sydney’s inner west.</span>
<span class="attribution"><a class="source" href="https://theconversation.com/sydney-needs-higher-affordable-housing-targets-69207">Inner West Council</a></span>
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<p>Not only are these windfalls enormous, they can add to the cost of infrastructure. </p>
<p>An industrial site in Altona North in Melbourne was bought by a developer for $8.7 million, rezoned for “comprehensive development” and then compulsorily acquired by the Victorian government for the West Gate Tunnel project for <a href="https://www.theage.com.au/politics/victoria/how-stupid-could-you-be-andrews-government-rezones-west-gate-tunnel-land-doubles-own-bill-20191220-p53m0b.html">$22.5 million</a>. </p>
<p>The Altona North rezoning added $14 million to the cost of the tunnel. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=254&fit=crop&dpr=1 600w, https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=254&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=254&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=319&fit=crop&dpr=1 754w, https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=319&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/350743/original/file-20200803-14-1oo4f0c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=319&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Rezoned industrial land in Altona North.</span>
<span class="attribution"><a class="source" href="https://www.theage.com.au/politics/victoria/how-stupid-could-you-be-andrews-government-rezones-west-gate-tunnel-land-doubles-own-bill-20191220-p53m0b.html">The Age</a></span>
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<h2>Why not charge for rezoning?</h2>
<p>The simplest way to fund council infrastructure would be to remove all fees and charges and sell the property rights granted through rezoning at market prices.</p>
<p>It could raise eight times what infrastructure charges do. </p>
<p>We know it can be done because the Australian Capital Territory has been doing it since 1971, charging <a href="https://www.planning.act.gov.au/leasing-and-titles/varying-crown-leases/lease-variation-charge">75%</a> of the market price for new property rights granted through rezoning. </p>
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<strong>
Read more:
<a href="https://theconversation.com/property-developers-pay-developer-charges-thats-why-they-argue-against-them-46816">Property developers pay developer charges, that’s why they argue against them</a>
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<p>In Sao Paulo, Brazil, the rights to develop to at higher densities have to be bought from the government <a href="https://www.iadb.org/en/news/news-releases/2016-10-12/capturing-land-value%2C11587.html">at auction</a>. </p>
<p>Developers won’t like it. Yet it would give them what they say they want, which is certainty. More than anyone else, they are acutely aware of what rezoning does to the value of their properties.</p><img src="https://counter.theconversation.com/content/142838/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray receives funding from The Henry Halloran Trust and is affiliated with Prosper Australia. </span></em></p>Rezoning enormously increases the value of properties. Yet the developers who benefit don’t want to pay, in the name of “certainty”.Cameron Murray, Research Fellow - Henry Halloran Trust, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1435942020-07-30T19:58:00Z2020-07-30T19:58:00ZWhy NSW is skewing its tax system toward build-to-rent apartments and away from mum and pop landlords<p>In an apparent about face, the NSW government has <a href="https://nsw.liberal.org.au/Shared-Content/News/2020/LAND-TAX-CUT-TO-DRIVE-BUILD-TO-RENT-REVOLUTION">halved land tax</a> for developers of build-to-rent housing.</p>
<p>It came weeks after the the Treasurer Dominic Perrottet launched a report that called for a <a href="https://www.treasury.nsw.gov.au/draft-report">greater reliance on land tax</a> as a replacement for stamp duty. </p>
<p>The greater reliance on land tax is a long-term goal. At the moment family homes are exempt, along with boarding houses, caravan parks, retirement villages and farms. Most other users pay land tax, including <a href="https://www.revenue.nsw.gov.au/squiz-sandbox/land-tax/exemptions-and-concessions">landlords</a> and businesses.</p>
<p>The change will give developers who invest in build-to-rent schemes offering <a href="https://www.smh.com.au/politics/nsw/nsw-to-cut-land-tax-for-20-years-in-ambitious-build-to-rent-scheme-20200728-p55gbm.htm">long tenancies</a> a 50% discount on their land tax for 20 years.</p>
<h2>Why build-to-rent?</h2>
<p>Most Australian rental properties are owned by individuals, units in apartment blocks as well as free-standing houses. Half are owned by landlords with only one property; <a href="https://grattan.edu.au/wp-content/uploads/2018/03/901-Housing-affordability.pdf">three quarters</a> by landlords with only one or two properties.</p>
<p>If you want to rent from a corporation, or from someone with wide experience in owning and renting properties, you’ll find it hard.</p>
<p>It makes Australia unusual. </p>
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<a href="https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/350346/original/file-20200730-17-1kp56wj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Nails in walls can cause problems for tenants.</span>
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<p>In other countries corporations rent out housing, <a href="https://theconversation.com/what-australia-can-learn-from-overseas-about-the-future-of-rental-housing-90401">big time</a>. America’s five largest corporate landlords own 420,000 properties. Germany’s largest landlord, Vonovia, owns more than 330,000.</p>
<p>Overseas experience suggests corporations provide more affordable housing, and in many ways they make better landlords. </p>
<p>Individuals who own just one property have put most of their eggs in one basket.</p>
<p>Because they can’t afford for anything to go wrong they check the condition of the property regularly. </p>
<p>They prohibit nails in walls and pets, and typically offer only short-term leases.</p>
<p>Corporations can play the law of averages. </p>
<p>Because they know most properties will be well maintained they are satisfied with less-frequent inspections. They allow modifications, and typically offer long-term leases.</p>
<p>They offer an experience pretty close to ownership, in return for rent.</p>
<p>It’s this that the NSW government wants to encourage. </p>
<p>To ensure it happens and to ensure built-to-rents don’t revert to the Australian pattern of individual investors owning individual units, it will specify that the apartments have at least 50 units and are managed under <a href="https://nsw.liberal.org.au/Shared-Content/News/2020/LAND-TAX-CUT-TO-DRIVE-BUILD-TO-RENT-REVOLUTION">unified ownership</a>.</p>
<h2>Tax makes it hard</h2>
<p>At the moment such developments are discriminated against when it comes to land tax. No tax is due if the land value is below a threshold. </p>
<p>Individual landlords are usually below the threshold (some spreading their portfolio between multiple states to ensure they don’t trigger each state’s threshold).</p>
<p>Wholly-owned apartment blocks are above the threshold and can’t escape it. University of Technology Sydney calculations suggest land tax on build-to-rent developments can consume up to 27% of the annual rent collected.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/build-to-rent-could-be-the-missing-piece-of-the-affordable-housing-puzzle-82320">'Build to rent' could be the missing piece of the affordable housing puzzle</a>
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<p>And they are subject to goods and services tax. They can reclaim some of it but not all. </p>
<p>The announcement comes at a time when the COVID crisis has cut stamp duty receipts and created an oversupply of vacant apartments, particularly around universities. </p>
<p>The initiative appears to have been crafted before the crisis and to be more forward looking. Many of the build-to-rent projects will take years to complete.</p>
<h2>It’s about changing the mix</h2>
<p>That said, any extra building activity will support the construction industry and extra stock will reduce home prices and rents.</p>
<p>The initiative doesn’t spell the end of mum and dad landlords. They will still predominate for a long time. </p>
<p>It’s about providing options and security for tenants that isn’t widely available and will become more important as a <a href="https://theconversation.com/the-edges-of-home-ownership-are-becoming-porous-its-no-longer-a-one-way-street-119995">greater proportion of Australians rent</a>. </p>
<p>Other states will be taking note.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/what-australia-can-learn-from-overseas-about-the-future-of-rental-housing-90401">What Australia can learn from overseas about the future of rental housing</a>
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<p>For a government that wants to eventually make land tax universal, the 50% cut is a step in the wrong direction. It might have been better to remove the threshold for small landlords.</p>
<p>But there’s no sign the NSW government has given up on its longer term goal. It’s unlikely to be the last time land tax rules are changed.</p><img src="https://counter.theconversation.com/content/143594/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Harry Scheule has received funding from the Landcom UrbanGrowth University Partnership Research Roundtable in 2018.</span></em></p>Corporations provide security in the form of long-term leases.Harry Scheule, Professor, Finance, UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1428232020-07-19T19:53:30Z2020-07-19T19:53:30ZProgressive in theory, regressive in practice: that’s how we tax income from savings<figure><img src="https://images.theconversation.com/files/348080/original/file-20200717-31-1f6e2yr.jpg?ixlib=rb-1.1.0&rect=0%2C275%2C3970%2C2131&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>We’re told Australia has a progressive tax system – the more you earn, the higher the rate.</p>
<p>And that’s certainly the case for earnings from wages. An Australian on A$35,000 sacrifices 21 cents out of each extra dollar they earn whereas an Australian on $90,000 sacrifices 39 cents.</p>
<p>That’s how it’s meant to be for income from savings, but in practice it isn’t.</p>
<p>Fresh calculations released this morning by the <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">Tax and Transfer Policy Institute</a> at the Australian National University show that low income Australians in the bottom tax bracket pay a higher marginal rate of tax on income from savings than high earners in the top tax bracket.</p>
<p>It is because of exemptions and special rates, and the alacrity with which high earners take advantage of them.</p>
<h2>Super gives the most to the highest earners</h2>
<p>The taxation of superannuation drives the results. </p>
<p>Super contributions are generally taxed at a flat rate of 15%. For low earners on an income tax rate of zero, 15% would constitute a considerable extra impost did the government not refund the difference with a <a href="https://drive.google.com/file/d/1W9FN4deDYY9q0ooFDPNqq1CvYAUz90Ao/view">tax offset</a> that cuts the effective rate to zero. </p>
<p>High earners on the 47% marginal rate do much better. The tax rate of 15% offers substantial tax relief. For them, it is an effective rate of minus 32%.</p>
<p>Other tax concessions are directed at older Australians, who are often on higher incomes than younger Australians.</p>
<h2>Highest bracket, lowest rate</h2>
<p>Our calculation of the marginal effective annual tax rates actually paid on income from savings is published in a report entitled <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">the taxation of savings in Australia: theory, current practice and future policy directions</a>. </p>
<p>It shows that the marginal tax rate high earners pay on additional savings held over a twenty year period is 5.3% of income, on average, whereas for low earners in the bottom (zero) tax bracket it’s 12.2%.</p>
<p>Low earners in the second lowest tax bracket are paying 13.8%.</p>
<hr>
<p><strong>Marginal effective tax rates actually paid on income from savings, by bracket</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Authors’ calculations using data from the Australian Survey of Income and Housing, 2019.</span>
<span class="attribution"><a class="source" href="https://taxpolicy.crawford.anu.edu.au/">TTPI Policy Report 01-2020</a></span>
</figcaption>
</figure>
<hr>
<h2>The way forward: a dual income tax system</h2>
<p>Our report proposes taxing all types of saving at the same flat low rate.</p>
<p>This dual income tax system (a progressive rate for wages and salaries, a flat rate for income from savings) has been used in Norway, Finland, Sweden
and Denmark since the early 1990s. Elements of it are used in Austria, Belgium, Italy, Greece and the Netherlands. </p>
<p>If the rate were 10%</p>
<p>• all interest payments would be taxed at 10%</p>
<p>• all dividends, both domestic and foreign, would be taxed at a rate of 10%</p>
<p>• all capital gains (including owner-occupied housing) would be taxed at 10%</p>
<p>• superannuation contributions would be made from after-tax income and then earnings in the accounts taxed at 10%</p>
<p>• rent and capital gains on investment properties would be taxed at 10%</p>
<p>• the imputed rent from owner-occupied housing (the benefit home owners get from not having to pay rent that is taxed) would be calcuated and taxed at a rate of 10%. An alternative would be to raise the same amount through a broad-based land tax.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/housing-and-tax-why-is-reform-so-hard-3300">Housing and tax: why is reform so hard?</a>
</strong>
</em>
</p>
<hr>
<p>Our calculations suggest that if the tax were applied broadly at a rate of 6.2%, it would raise as much as is raised now from taxes on income from savings. If income from owner-occupied housing were excluded, the rate would need to be 10.2%.</p>
<p>But there is no particular reason for the rate to be set to generate as much from savings income as it does now. It could be set to raise more, or to raise less.</p>
<p>The design and implementation of a dual income tax should be considered alongside broader changes to the tax and transfer system. In particular, it should be combined with removing opportunities to re-classify income for tax minimisation purposes. We outline some of the considerations <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">in our report</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/tax-free-super-is-intergenerational-theft-60369">Tax-free super is intergenerational theft</a>
</strong>
</em>
</p>
<hr>
<p>In the meantime, as steps towards a flatter fairer system of taxing income from savings, the government could consider better targeting superannuation subsidies, replacing real estate stamp duty with land tax and including the family home in the means tests for pensions and other age-related benefits.</p>
<p>Our current approach to taxing income from savings is a mess at best and a serious driver of intergenerational inequality at worst. Some savings tax arrangements are progressive, taxing higher incomes more heavily, and some are regressive. </p>
<p>We want to encourage and reward savings. But we also need to remove the crazy incentives that impel ordinary Australians to take part in distorting and costly tax planning schemes.</p>
<p>Our report outlines a way forward, and steps to get there.</p><img src="https://counter.theconversation.com/content/142823/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig works for the Tax and Transfer Policy Institute which is an independent policy institute established in 2013 with an endowment from the federal government. It is supported by the Crawford School of Public Policy of the Australian National University.</span></em></p><p class="fine-print"><em><span>Kristen Sobeck works for the Tax and Transfer Policy Institute which is an independent policy institute established in 2013 with an endowment from the federal government. It is supported by the Crawford School of Public Policy of the Australian National University.</span></em></p><p class="fine-print"><em><span>Peter Varela does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It would be a mistake to think that just because higher earners face higher tax rates, that’s what they pay. When it comes to income from savings it’s the other way around.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityKristen Sobeck, Senior Research Officer, Crawford School of Public Policy, Australian National UniversityPeter Varela, Research Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1418932020-07-05T19:50:06Z2020-07-05T19:50:06ZMemo to Australia’s states: try renovating your tax system before asking for a new one<figure><img src="https://images.theconversation.com/files/345456/original/file-20200703-29-1ns9ko0.jpg?ixlib=rb-1.1.0&rect=957%2C202%2C3009%2C1498&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A <a href="https://www.treasury.nsw.gov.au/federal-financial-relations-review">major report</a> commissioned by the NSW government has proposed lifting and expanding the goods and services tax and replacing stamp duty with a broad-based land tax.</p>
<p>Launched at the <a href="https://iview.abc.net.au/show/national-press-club-address/series/0/video/NC2011C023S00">National Press Club</a> on July 1 by NSW Treasurer Dominic Perrottet, panel chair David Thodey and panel member Jane Halton, the report said what has been said before – that these particular big bold changes will set Australia up for the future.</p>
<p>But they’ve fallen flat in the past.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Former Telstra chief David Thodey launching the Federal Financial Relations Review on July 1.</span>
<span class="attribution"><span class="source">MICK TSIKAS/AAP</span></span>
</figcaption>
</figure>
<p>Big bold proposals have losers as well as winners. When the losers are identified, it is hard to get traction, even if the winners want them.</p>
<p>NSW residential stamp duty is roughly equivalent to a tax on property of one and a half to twice the current municipal rates. Transitioning from one to the other might take <a href="https://www.ahuri.edu.au/__data/assets/pdf_file/0020/15338/Pathways-to-state-tax-reform-Executive-Summary.pdf">10 to 20 years</a>. </p>
<p>The losers (people paying higher rates) are more numerous and likely to be more vocal than the winners (people finding it cheaper to move home).</p>
<p>And proposals involving the goods and services tax lead to finger pointing – towards the Commonwealth for waiting for the states, and towards the states for waiting for each other. </p>
<p>Proposing the Commonwealth fix state problems is attractive to everyone but the Commonwealth.</p>
<p>Thodey’s <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">report</a> is an improvement on many past reports, but it too has shot for the big headlines. The states do have genuine problems with tax design and the current federal arrangements, but a more worthy strategy might be to focus on renovating the system they’ve got.</p>
<h2>Renovation is slow, but effective</h2>
<p>Repairing what states already have is simpler, less contentious and almost certainly just as effective as big bold programs, albeit less exciting.</p>
<p>A recent review I took part in, commissioned by the Australian Housing
and Urban Research Institute, found it was best to start <a href="https://www.ahuri.edu.au/research/final-reports/291">small</a>, build each case, and move incrementally. </p>
<p>First, state governments should wind back the current array of <a href="https://www.budget.nsw.gov.au/sites/default/files/budget-2019-06/Appendices-A5-BP1-Budget_201920.pdf">tax concessions</a>. Doing so in NSW could increase land tax collections by 27%, payroll tax collections by 19% and conveyancing stamp duty by 9%.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cutting-out-the-insurance-free-rider-when-it-comes-to-funding-fire-services-15852">Cutting out the insurance "free rider" when it comes to funding fire services </a>
</strong>
</em>
</p>
<hr>
<p>Second, in NSW there would be value in revisiting the failed 2017 proposal to replace insurance stamp duties with a property-based fire and emergency services levy applying to all homes needing fire protection, not just those that are insured, a proposal the new NSW review <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">supports</a>.</p>
<p>Most states have already done it. The levy would lay the foundations for property making a greater contribution to state revenue and build the architecture needed for a land tax for stamp duty swap.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/post-coronavirus-well-need-a-working-tax-system-not-more-taxes-and-not-higher-rates-137232">Post-coronavirus, we'll need a working tax system, not more taxes and not higher rates</a>
</strong>
</em>
</p>
<hr>
<p>Third, and very unexciting, states should renovate their tax administration. One initiative would be a national harmonised payroll tax administered by the Australian Tax Office.</p>
<p>Another would be publishing <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/">tax gap</a> estimates. The tax office has found publishing estimates of what is not being collected compared to what could be collected is <a href="https://www.ato.gov.au/Media-centre/Speeches/Other/Future-of-tax-administration/">fundamental</a> to identifying what is not working.</p>
<p>None of these ideas make for big headlines. But on the track record of ideas that attract big headlines so far, they are likely to achieve more than those that do.</p><img src="https://counter.theconversation.com/content/141893/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neil Warren has received funding in the past from the Australian Housing and Urban Research Institute.</span></em></p>Boosting the GST and swapping land tax for stamp duty get headlines, but they never seem to happen.Neil Warren, Emeritus Professor of Taxation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1417772020-07-02T20:07:56Z2020-07-02T20:07:56ZStamp duty is an economic drag. Here’s how to move to a better system<figure><img src="https://images.theconversation.com/files/345198/original/file-20200702-2649-gi5d1c.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3992%2C2992&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>For all the things we don’t know about COVID-19 one thing is certain: our economic recovery will depend on boosting productivity. Everyone from the Reserve Bank of Australia governor Philip Lowe to Prime Minister Scott Morrison and Opposition Leader Anthony Albanese seem to agree on this.</p>
<p>The question, of course, is how to do it.</p>
<p>This could involve important but significant changes to our industrial relations system, company tax (reducing rates to be more internationally competitive) and the education system. </p>
<p>Important though such reforms are, they will be challenging politically.</p>
<p>One modest but easy-to-execute reform would be to finally get rid of one of the most inefficient and distorting taxes in our system: stamp duty, the tax state and territory governments charge on the sale of real estate, vehicles and a few other types of transactions. <a href="https://www.yourmortgage.com.au/calculators/stamp_duty/">Stamp-duty</a> on a A$750,000 owner-occupied property ranges from about A$22,000 in Queensland to about A$42,000 in Victoria.</p>
<p>This week, a year-long review of Australia’s taxation system <a href="https://www.smh.com.au/politics/nsw/nsw-pushes-for-sweeping-changes-to-australia-s-federation-20190618-p51ytc.html">commissioned by the New South Wales government</a> recommended abolishing stamp duty.</p>
<p>The review, headed by CSIRO chairman and former Telstra chief executive David Thodey, joins a long line of reviews to observe that stamp duty discourages efficient property transactions.</p>
<p>People don’t move homes when it otherwise makes sense because of the massive tax cheque they have to pay to buy a new property. In particular it means older people hold on large family homes long after they need them. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-older-australians-dont-downsize-and-the-limits-to-what-the-government-can-do-about-it-76931">Why older Australians don't downsize and the limits to what the government can do about it</a>
</strong>
</em>
</p>
<hr>
<p>This leads to what is, for an economist, a nightmare: voluntary trades between willing parties that would make everyone better off do not occur.</p>
<p>The economic answer to this problem is simple. It has been known to every economist since Henry George proposed it in 1879: a land tax. </p>
<p>Rather than pay a large percentage when buying a property, owners should pay a smaller amount each year.</p>
<h2>Avoiding double taxation</h2>
<p>The problem is the politics of making the switch. </p>
<p>Those who have paid stamp duty would rightly complain they are being double-taxed if they also had to pay a new land tax.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/stamp-duty-fever-the-bad-economics-behind-swapping-stamp-duty-for-land-tax-106841">Stamp duty fever: the bad economics behind swapping stamp duty for land tax</a>
</strong>
</em>
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<hr>
<p>There is, however, a simple fix to this. Allow buyers to elect to pay stamp duty (at the current rate) or pay land tax each year (at a lower rate, perhaps 1% a year). </p>
<p>If they elect to pay land tax, that property forever becomes a “land tax property”. Any future buyers will pay land tax. Australia’s system of property title makes this easy to track and enforce.</p>
<p>This “opt-in” system is discussed in the Thodey review.</p>
<p>It would effectively “grandfather” the land tax scheme, ensuring those who have paid stamp duty are not double-taxed. Because new buyers can choose to pay stamp duty or land tax, they cannot be worse off than under the current system. It’s up to them. </p>
<p>We can’t do anything about the past inefficiencies of the system. We can only fix the transactions of the future, as this scheme does. We can have grandfathering with the fairness it entails, while getting all of the efficiency benefits of land tax.</p>
<h2>Addressing concerns</h2>
<p>State and territory governments might worry that moving from payments upfront to over time will hurt their revenue in the short term. They shouldn’t. </p>
<p>Ratings agencies like Standard and Poor’s or Moody’s understand a shift to land tax would be better for the economy. Whatever the short-run budgetary implications, government balance sheets won’t change in the longer run. Their credit ratings should be safe.</p>
<p>Also, they can always turn future land-tax revenue into more immediate revenue by “securitising” it, for example by selling government bonds it pays back with land tax revenue.</p>
<p>One legitimate concern is that a land tax might be more susceptible to politicians slowly increasing it over time, turning it into a kind of backdoor wealth tax. That would be a bold political move, but some might still be tempted given their politics and budgetary bottom line.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-housing-system-needs-a-big-shake-up-heres-how-we-can-crack-this-130291">Australia's housing system needs a big shake-up: here's how we can crack this</a>
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</em>
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<hr>
<p>Competitive federalism, however, should lessen any such temptation. Any state or territory too far out of step with the others is likely see its more mobile residents vote with their feet. </p>
<p>Perhaps better still would be for state and territory governments to make this reform part of a grand bargain on their fiscal relation with the federal government. This could help them effectively commit not to raise land tax in return for their guaranteed share of revenue from the goods and services tax, for instance. </p>
<p>Improving productivity post-COVID-19 will be challenging. We need to take the easy wins when we find them. Moving from stamp duty to land tax ought to be a no-brainer.</p><img src="https://counter.theconversation.com/content/141777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s time to reform stamp duty, one of the most inefficient and distorting taxes collected by Australia’s state and territory governments.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1276272019-12-08T07:14:49Z2019-12-08T07:14:49ZGlobal and historical lessons on how land reforms have unfolded<figure><img src="https://images.theconversation.com/files/304883/original/file-20191203-67002-4br5uv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Large estates in Vietnam were collectivised.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>What can South Africa learn about land reforms from wider global and historical experiences in the 20th century? Most land reforms have involved transferring rights of ownership from wealthy landlords to poor, small-scale farmers working the land under various kinds of tenancy arrangements. These are often described as “land to the tiller” reforms. </p>
<p>Much less common are redistributive reforms that resettle small farmers on large estates subdivided into smaller plots. Southern Africa, the Africa of “settler states”, is something of an outlier in this respect.</p>
<p>Changes in the distribution, character and legal status of rights to land and natural resources, as well as in the class character and productivity of the agrarian economy, have powerfully shaped the modern world. Land reform has played a central role in the transition from pre-capitalist forms of economy to capitalism. Before capitalism, classes of unproductive landed property dominated the countryside.</p>
<h2>Reform and revolution</h2>
<p>Two revolutionary convulsions, in Mexico in 1910 and in Russia in 1917, saw peasants play key roles in the overthrow of autocratic states. They were replaced by popular democracy in Mexico and socialism in Russia. In both cases the mass of the population was engaged in small-scale peasant farming.</p>
<p>Power and wealth in the countryside were concentrated in the hands of a small landowning elite. Radical redistributive land reforms were driven “from below” and large areas of land were transferred to the rural poor. Subsequent developments in Mexico, however, saw the takeover of the agrarian economy by large-scale capital. The fate of the Russian peasantry was even more tragic.</p>
<p>After the second world war, pressures for decolonisation and national liberation increased dramatically. European colonial powers had to give up their direct control of large areas of the world. Tensions between the capitalist West and the communist bloc led by the Soviet Union heightened – the Cold War period.</p>
<p>In the former colonies, most people were still engaged in small-scale farming. Land reform featured strongly in many national liberation struggles, described by the anthropologist Eric Wolf as <a href="https://www.cambridge.org/core/journals/journal-of-asian-studies/article/peasant-wars-of-the-twentieth-century-by-eric-r-wolf-new-york-harper-row-1969-xv-328-pp-bibliography-index-paperback-np/85F7B814F932B58BB58F1624DCD503B1">“peasant wars”</a>. It also formed a focus of post-independence policy. In most cases these were “land to the tiller”-type reforms. Large estates in Vietnam, Algeria and Cuba were collectivised by socialist governments.</p>
<p>In China, land reform initially involved “land to the tiller”. Collectivisation followed, and from 1978, in the <a href="http://www.china.org.cn/features/60years/2009-09/16/content_18534697.htm">Household Responsibility System</a>, land ownership remained with the collective. Currently, of course, China is encouraging capitalist farming.</p>
<p>In Japan, South Korea and Taiwan, agrarian reform helped to consolidate capitalism. It underwrote rapid industrialisation, with reforms driven from above by authoritarian states, backed by occupying United States forces. This was designed to pre-empt a turn to communism. Powerful landlords were expropriated and their land redistributed to tenants. Technological innovation raised productivity. </p>
<p>But the capitalists ended up appropriating the agricultural surplus. This process was made possible by administered prices, taxation and supplies of cheap rural labour to emerging industries.</p>
<h2>The 1980s</h2>
<p>The 1980s saw something of a hiatus. The “developmental state” gave way to neoliberal, market-oriented reforms. But in a few countries openings were created for radical reform. These included Nicaragua, El Salvador, Honduras, the Philippines and Zimbabwe. In the 1990s, large-scale peasant mobilisations took place in Indonesia and Honduras.</p>
<p>From 1990, after the collapse of Soviet-style communism, the US and the World Bank promoted a “new wave” of land reform. This was a way to consolidate capitalist property relations.</p>
<p>In southern Africa, for example, where redistributive land reform was necessary because of historical legacies, the advocates of “new wave” reform sought to avoid expropriation. They argued instead for policies based on “willing sellers and willing buyers”. This influenced negotiated transitions and land reform policies in Zimbabwe, Namibia and South Africa.</p>
<p>Since the 1980s and the rise of neoliberalism, many developing countries have strongly promoted large-scale, commercial and export-oriented farming. With capitalism now hegemonic, the terrain on which land reform takes place has been dramatically altered. </p>
<p>But these shifts haven’t been uncontested. Global social movements such as <a href="https://viacampesina.org/en/">Via Campesina</a>, the “way of the peasant”, have emerged to resist neoliberal-style reform. They urge redistribution of land to the poor.</p>
<p>At the same time, new issues loom large within debates on land reform. Gender equity and claims to resources by indigenous peoples are two. They also include the unequal and often unhealthy character of global agro-food systems, and environmental sustainability.</p>
<p>Comparing these experiences, what can we conclude?</p>
<p>It seems to me that South Africa’s land reform is pre-eminently driven by the state. But the state has been captured by elite interests.</p>
<p>Nevertheless, in some cases land reform has been followed by significant reductions of rural poverty. Land reform has also resulted in increased productivity, output and income. These changes have made a significant contribution to development more generally. </p>
<p>There have also been many disappointing outcomes. These include little or no reduction in rural poverty. And the benefits of reform have in some cases been captured by the relatively wealthy.</p>
<h2>Class bias and elite capture</h2>
<p>Land reform in South Africa, Zimbabwe, Namibia, and Mozambique is quite distinctive in some ways, and typical in others. It is distinctive in its focus on breaking up large and productive farms. It is somewhat muted in rural struggles and hence its state-driven character, with Zimbabwe as a partial exception. It is also muted in its ambitions to undertake both redistribution and tenure reform on a large scale. South Africa has the added complication of restitution.</p>
<p>Land reform in southern Africa is not at all distinctive in the fate of land reform being closely tied to shifts in wider political economy. Hence the class bias and elite capture. Neither is it distinctive in its turn away from small-scale farmers towards large-scale capitalist agriculture. Again, in this Zimbabwe is unique.</p>
<p>The bigger unresolved issue of land reform in the 21st century is the need to confront the overwhelming threat of ecological collapse. South Africa’s rural reforms have not yet done so. Asking questions about how to address this challenge is an urgent task.</p>
<p><strong>This is an extract from a recent <a href="https://www.plaas.org.za/land-reform-accumulation-and-social-reproduction-public-lecture-by-prof-ben-cousins/">lecture </a> delivered by Professor Cousins at the University of the Western Cape.</strong></p><img src="https://counter.theconversation.com/content/127627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Cousins receives funding from the National Research Foundation.</span></em></p>Land reform has always been closely tied to shifts in the wider political economy of countries.Ben Cousins, Professor, Poverty, Land and Agrarian Studies, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1156892019-04-18T21:10:17Z2019-04-18T21:10:17ZA taxing problem: Canadian cities desperately need new sources of revenue<figure><img src="https://images.theconversation.com/files/269843/original/file-20190417-139120-1fhaof.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The digital economy will impact the ability of cities to generate revenue through traditional land-based taxes. A new solution is needed. </span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Mark Blinch</span></span></figcaption></figure><p>Canada’s municipalities are at the forefront of delivering a growing array of vital services to citizens, ranging from affordable housing, transit and child care to managing more than a trillion dollars of infrastructure.</p>
<p><a href="https://www150.statcan.gc.ca/n1/pub/11-402-x/2011000/chap/seniors-aines/seniors-aines-eng.htm">With nearly one in four Canadians expected to be over the age of 65 by 2031</a>, many of these services will become increasingly expensive. Yet the ability of municipalities to pay their mounting bills is likely to be threatened by the growing gap between how value is created in today’s modern economy and the limited revenue tools available to cities and towns.</p>
<p>The growth of the digital economy, <a href="https://www.thestar.com/news/canada/2019/04/13/netflix-amazon-and-apple-dont-have-to-play-by-our-rules-thats-why-canadian-broadcasting-is-at-risk.html">in which firms such as Amazon and Alphabet are increasingly dominating key sectors like retail and advertising</a>, poses revenue challenges for all governments. Taxation systems based on residency for corporations and individuals are tough to apply in a borderless world with multinational platforms that employ relatively few workers.</p>
<p>These challenges are particularly acute at the local level, where revenue options are largely limited to land-based tools in the form of property taxes and development charges (in addition to user fees and intergovernmental transfers).</p>
<h2>The decline of commercial land</h2>
<p>E-commerce is reducing the demand for retail spaces, <a href="https://www.cbc.ca/news/business/telecommuting-growing-as-companies-look-to-save-money-respond-to-employees-1.3596420">telecommuting and hot-desking are gaining in popularity</a>, workplaces are shrinking, and the average square footage per employee is declining. Land consumption is increasingly becoming decoupled from economic growth — a problematic development for local governments.</p>
<p>Additionally, the continuing shift from manufacturing and the industrial sector towards the service sector and knowledge economy means the share of revenues from non-residential property is on a downward trend. <a href="https://www.cbc.ca/news/canada/calgary/calgary-property-taxes-residential-business-phased-program-1.4882619">As a result, reliance on residential ratepayers is increasing.</a></p>
<p>To add to these challenges, a fundamental reality facing local governments in Canada is that constitutionally, they are “creatures of the province.” Their autonomy in responding to new challenges is limited — any new power, including the ability to introduce new financial tools, requires provincial approval. </p>
<h2>Cities must look to Ottawa</h2>
<p>As the federal <a href="https://www.pbo-dpb.gc.ca/en/blog/news/FSR_September_2018">Parliamentary Budget Officer has noted</a>, the federal government over the longer-term will have close to $30 billion a year with which to increase spending or reduce taxes while maintaining the current net debt-to-GDP ratio. Meanwhile, provinces will face an $18 billion shortfall in order to maintain current debt ratios. In other words, the direct relationship with provinces will be of limited value to municipal governments seeking more funding, and their best option will be at the federal level.</p>
<p>Given the tight fiscal position of provinces going forward, largely driven by increased health care and social services costs, the federal government is a vital partner at the table for these conversations about who does what and how it is funded.</p>
<p>The latest federal budget announced a <a href="https://www.budget.gc.ca/2019/docs/plan/chap-02-en.html#New-Infrastructure-Funding-for-Local-Communities-Through-a-Municipal-Top-Up">Municipal Infrastructure Top-Up</a> of $2.2 billion, which will double the amount of money municipalities generally receive through the federal gas tax fund.</p>
<p>While this announcement is good news for municipalities, it is one-time funding and not the sustained, long-term commitment that is required.</p>
<p><a href="https://mowatcentre.ca/rethinking-municipal-finance-for-the-new-economy/">Our recent report for the Mowat Centre at the University of Toronto looks at municipal finances in the new economy</a> and suggests it’s vital that Canadian governments review their existing revenue sources and core responsibilities.</p>
<h2>Cities get little of your tax dollar</h2>
<p>Governments’ responsibilities have dramatically shifted in the 50 years since the last similar review was conducted. For every household tax dollar paid in Ontario, municipalities <a href="https://www.amo.on.ca/AMO-PDFs/Whats-Next-Ontario/Whats-Next-Ontario-Fiscal-Overview-Accessible-2015.aspx">collect only nine cents</a>, which doesn’t begin to match their ever-increasing list of responsibilities.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/269846/original/file-20190417-139084-3hk50z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">More than 80 per cent of Canadians now live in urban centres.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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</figure>
<p>Some short-term options that municipalities should consider include introducing progressive property taxes, with higher rates applied to more valuable properties. To avoid burdening house-rich but low-income households with high property tax bills, deferral programs that delay payment till the property is sold could be introduced or expanded.</p>
<p>Introducing “teleworking” and “co-working” space classes of property tax could also be considered to reflect the changing nature of work, <a href="https://www.theglobeandmail.com/news/politics/ontario-municipalities-call-for-sales-tax-hike-to-fund-local-projects/article35988536/">as well as long-standing proposals to implement a one per cent municipal sales tax which would raise $2.5 billion in Ontario.</a></p>
<p>Tapping into the increase in digital economic activity could also provide new revenue streams for municipalities. <a href="https://www.ctvnews.ca/business/ottawa-to-start-charging-airbnb-users-accommodation-tax-1.3935347">Some options include a tax on Airbnb rentals, as Ottawa and Toronto have introduced</a>, or <a href="https://www.wri.org/blog/2018/08/cities-are-taxing-ride-hailing-services-uber-and-lyft-good-thing">fees per kilometre travelled for ride-sourcing firms such as Lyft or Uber, as in the Brazilian city of Sao Paolo</a>, which expects to raise $15 million a year for infrastructure needs through this levy.</p>
<h2>Time to modernize taxation</h2>
<p>As the world continues to evolve, Canada must modernize its approach to taxation and revenue generation. <a href="https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016001/98-200-x2016001-eng.cfm">More than 80 per cent of Canadians live in large and medium-sized cities</a> and the vibrancy of these urban centres is not assured going forward. Sustained prosperity will require significant investments in transit, affordable housing and other core social services.</p>
<p>Canada’s cities and towns need modern arrangements that reflect their place at the centre of the new realities of the modern world.</p><img src="https://counter.theconversation.com/content/115689/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The report on municipal finances in the new economy released by the Mowat Centre that was mentioned in this article was funded by Peel Region.</span></em></p>As more Canadians flock to urban centres, those cities have fewer options to raise taxes New tax policies are needed that reflect the shift to a digital economy.Sunil Johal, Policy Director, The Mowat Centre, University of TorontoKiran Alwani, Policy Associate, The Mowat Centre, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1138352019-03-19T03:39:49Z2019-03-19T03:39:49ZTwo ways to fund NSW election promises as property prices crash<figure><img src="https://images.theconversation.com/files/264556/original/file-20190319-28475-1uontsh.jpg?ixlib=rb-1.1.0&rect=26%2C53%2C5946%2C3538&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Previous NSW election promises were easily funded. Not so this time.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>State elections are always about spending promises, but this time not much is being said about how they will be funded.</p>
<p>Last minute costings on individual announcements tend to rely on the general presumption that the state economy will keep growing and somehow produce the needed revenue.</p>
<p>This is evident in the costings released by the <a href="https://www.parliament.nsw.gov.au/pbo/Pages/2019-Budget-Impact-Statements.aspx">NSW Parliamentary Budget Office</a>, which show that new spending promises from both major parties exceed new revenue promises. </p>
<p>The Labor Party has managed to find some new revenue through increased taxes on luxury cars, boats and vacant properties, while the Coalition has unveiled no new revenue initiatives at all. </p>
<p>While the property market has been climbing this needn’t have mattered that much. But for the past 20 months Sydney prices have been falling. Projected stamp duty revenues are being repeatedly revised downwards. The latest wipes A$9.5 billion off what was expected at the time of the 2017 budget.</p>
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<p><em>NSW state revenue by type, A$ billion</em></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=263&fit=crop&dpr=1 600w, https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=263&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=263&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=331&fit=crop&dpr=1 754w, https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=331&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/264545/original/file-20190319-28505-1lq1n1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=331&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://sydney.edu.au/content/dam/corporate/documents/sydney-policy-lab/Squeezing%20services%20report%20Sydney%20Policy%20Lab">University of Sydney Policy Lab</a></span>
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<h2>Austerity, or an alternative?</h2>
<p>It’s looking as if the incoming NSW government will need to moderate spending including spending on essential services and infrastructure, but there might be a way out.</p>
<p>Today, we published a <a href="https://sydney.edu.au/news-opinion/news/2019/03/18/nsw-finances-face-a-serious-squeeze-unless-radical-action-is-tak.html#">new report for the Sydney Policy Lab</a> outlining two ways in which the NSW government can ready its budget for a post-housing boom economy.</p>
<p>Politicians of all parties tell us that fiscal rules create binding constraints for state governments and they are right.</p>
<p>But there are imaginative ways to strengthen state finances and to interpret those constraints.</p>
<h2>Alternative 1: taxing residential land</h2>
<p>Although land used for holiday homes and rental properties faces land tax, land used for owner-occupied housing is exempt in NSW, meaning as much as A$1 trillion of land is exempt.</p>
<p>It is a source of wealth – one of the few covered by state tax powers – that the budget can no longer afford to ignore.</p>
<p>Extending NSW land tax to owner-occupied residences with safeguards could fund much of the state’s needed service and infrastructure spending and wind back the outsized reliance on stamp duty.</p>
<p>With so many people locked out of home ownership altogether, it would make the tax system fairer.</p>
<h2>Alternative 2: redefining ‘investment’</h2>
<p>Under NSW budget rules spending on services is defined as cost that needs to be matched by immediate revenue. Spending on infrastructure, often on infrastructure which will later be privatised, is defined as an investment, meaning it doens’t have to be matched by immediate revenue.</p>
<p>It is why there is talk about a squeeze on services in the midst of record spending on infrastructure.</p>
<p>There’s room to change those definitions. </p>
<p>While there are good macroeconomic and budgetary reasons to differentiate day to day spending from investments, much of what is defined as day to day spending is in fact an investment.</p>
<p>There’s no reason why the state’s power to borrow to invest in infrastructure couldn’t also be used to invest in public services like health and education. With a change of rules, governments could borrow to invest in nurses and teachers at interest rates currently reserved for toll roads.</p>
<h2>First steps</h2>
<p>A practical starting point would be to connect spending on public services to the savings they create in other parts of the state budget, and account for this as the return on the investment. </p>
<p>As an example, “justice reinvestment” could fund programs aimed at reducing Indigenous incarceration out of the savings those programs would eventually deliver in other areas.</p>
<p>The redefinition would remove the present bias towards programs that build only physical infrastructure that has to be paid for later with tolls or privatisations.</p>
<p>Both ideas could help whichever party or parties form government after Saturday’s election, and help NSW. Without them, budgeting will become more difficult.</p>
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Read more:
<a href="https://theconversation.com/nsw-election-likely-to-be-close-and-mark-latham-will-win-an-upper-house-seat-113549">NSW election likely to be close, and Mark Latham will win an upper house seat</a>
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<img src="https://counter.theconversation.com/content/113835/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gareth Bryant is a member of the Greens. He does not have any office-bearing or spokesperson roles.</span></em></p><p class="fine-print"><em><span>Frank Stilwell is affiliated with the Evatt Foundation. </span></em></p>Prices have been falling since September 2017. It means the budget will no longer repair itself.Gareth Bryant, Lecturer in Political Economy, University of SydneyFrank Stilwell, Emeritus Professor, Department of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1068412018-11-13T19:03:15Z2018-11-13T19:03:15ZStamp duty fever: the bad economics behind swapping stamp duty for land tax<figure><img src="https://images.theconversation.com/files/245245/original/file-20181113-194494-19rdn8k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Eliminating stamp duty would bring on more real estate transactions, but that might not be a good thing.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>To paraphrase former prime minister Paul Keating, walk into <a href="https://www.smh.com.au/politics/federal/plenty-of-bark-any-bite-20101028-175mv.html">any pet shop in the country</a> and you’ll find the resident galah saying we should swap stamp duty for a land value tax.</p>
<p>Just about every economic think tank in the land thinks it’s about the best value tax change there is, among them the <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Grattan Institute</a>, <a href="https://percapita.org.au/our_media/replacing-stamp-duty-with-broad-based-land-tax-could-increase-revenue-to-11-2-billion-by-2047-new-report-shows/">Per Capita</a>, the <a href="http://www.tai.org.au/sites/defualt/files/P149_Tax%20the%20need%20for%20change.pdf">Australia Institute</a>, and the <a href="https://www.cis.org.au/commentary/articles/dominic-perrottets-reforms-are-welcome-but-the-government-must-break-its-addiction-to-this-bad-tax/">Centre for Independent Studies</a> as well as <a href="https://www.thepolicyspace.com.au/2015/25/58-five-ways-to-reform-state-taxes">a swag of academics</a>, the Treasury in its work on the <a href="http://bettertax.gov.au/files/2015/03/08_GST-and-State-Taxes.pdf">draft white paper for tax reform</a> and the <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_g2-2.htm">Henry Tax Review</a>.</p>
<p>Among the benefits of what I will call SD4LVT are said to be greater ease in upsizing and downsizing, a more mobile population (less reluctant to buy and sell houses) and a more reliable source of revenue for state governments.</p>
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Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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<p>One state, the Australian Capital Territory, has already begun a <a href="https://www.revenue.act.gov.au/tax-reform">20-year</a> phase out of stamp duty and a 20-year build up of land tax.</p>
<p>But beneath the near universal enthusiasm for SD4LVT are layers of bad economics.</p>
<p>It is extremely frustrating to me that the leading minds in Australian policy have put their heads together and decided that the best reform they can think of is to replace a good tax on property with another good one that would be even less popular.</p>
<p>The more thoughtful among them don’t even bother to claim that SD4LVT will make housing more affordable, yet still put it forward as the “holy grail” of tax reform.</p>
<p>It is bad economics because of four key points its proponents miss or overlook.</p>
<h2>Price effects</h2>
<p>Stamp duty comes out of what the buyer is prepared to pay. This means that if you remove it, all other things equal, prices will rise by exactly the amount of the duty removed. </p>
<p>If the average home price is A$500,000, and buyers pay a 5% stamp duty, taking the total to A$525,000, then when stamp duty is removed the price will immediately increase to $525,000 being what the buyer was prepared to pay.</p>
<p>If you replace the stamp duty revenue with revenue from land value taxes, the effects on price are less clear. The change could push them up (enriching sellers) or it could push them down.</p>
<p>Imagine an example economy with:</p>
<ul>
<li>20 houses </li>
<li>Turnover of one house each year (a turnover rate of 5%) </li>
<li>An average home price of A$500,000 </li>
<li>Average land price component of A$250,000</li>
<li>Total stamp duty revenue of A$25,000 per year</li>
</ul>
<p>Replacing the A$25,000 stamp duty revenue with a land value tax requires taxing all 20 homes at A$1,250 per year each.</p>
<p>Whether the market price of homes rises or falls depends on whether buyers think the cost to them of A$1,250 per year is lower or higher than the A$25,000 upfront stamp duty they avoided. If they thought it was about the same, SD4LVT wouldn’t much affect prices. </p>
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Read more:
<a href="https://theconversation.com/killing-off-stamp-duty-a-good-policy-that-no-politician-supports-38536">Killing off stamp duty: a good policy that no politician supports</a>
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<p>But what if turnover was half that, say 2.5%, which in this example would be where one house was sold every two years? In that case, the total stamp duty to be replaced would be A$12,500, which would be only A$625 per house in land tax.</p>
<p>The new buyer could pay A$512,500 for the house plus A$625 per year in land tax and be equally as well off as paying A$500,000 for the house plus A$25,000 in stamp duty. </p>
<p>The net effect would be a 5% land price increase from A$250,000 to A$262,500</p>
<p>If that happened nationally it would mean a transfer of almost A$200 billion to existing owners.</p>
<p>Whether or not that did happen would depend on the turnover and buyer’s views about the future value of money. In short, the price effects of a SD4LVT are ambiguous.</p>
<h2>Mobility</h2>
<p>While it is said that stamp duties deter Australians from changing addresses and switching jobs, there is little evidence that they are not changing enough.</p>
<p>Most people who relocate for work <a href="https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-3-housing-market-turnover.pdf">don’t buy and sell homes in order to do it</a>.</p>
<p>They rent first, becoming both a renter and a landlord for a while, perhaps selling their first home later, but not quickly.</p>
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Read more:
<a href="https://theconversation.com/why-older-australians-dont-downsize-and-the-limits-to-what-the-government-can-do-about-it-76931">Why older Australians don't downsize and the limits to what the government can do about it</a>
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<p>When they do sell, often for a healthy profit, stamp duty ensures they pocket less than would have, grabbing back some of what might otherwise be an untaxed capital gain. </p>
<p>Lower housing turnover from stamp duties mainly falls on the nearly half of sales involving investors who buy speculatively to capitalise on short bursts of capital growth before selling, in the process fuelling the boom and bust price cycle.</p>
<p>To me, anything that slows down real estate turnover and captures capital gains seems like a good idea.</p>
<h2>Revenue stability</h2>
<p>It is claimed that stamp duty revenues are much more volatile than other taxes. During a boom, they climb more than proportionally to prices since they also depend on turnover. During a bust, they fall more quickly than prices.</p>
<p>If I was to think in the abstract about what sort of taxes are good for the economy, I would say it is those that are pro-cyclical, meaning they automatically increase takings during a boom, and wind them back during a bust. </p>
<p>On this measure, stamp duty is a good tax for stabilising the economy, something important given how much our economic cycles are tied to housing markets.</p>
<p>The land value tax that SD4LVT proponents would replace stamp duty with would make the tax system as a whole less stabilising.</p>
<h2>Odd modelling</h2>
<p>You might have seen a chart like the Treasury graph below, with stamp duties presented as having enormous flow-on economy-wide costs compared to other taxes. In this example, land tax which is presented as having an economic benefit.</p>
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<iframe src="https://datawrapper.dwcdn.net/i78qD/3/" scrolling="no" frameborder="0" allowtransparency="true" width="100%" height="400"></iframe>
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<p>The problem with the graph is that modelling used to prepare it (computational general equilibrium modelling) can’t directly account for transaction taxes because it doesn’t model transactions. </p>
<p>Instead of using a better tool for the job, the modellers assume that stamp duties increase cost of housing to all buyers and renters. It’s this assumption that drives a conclusion they describe as merely “<a href="http://www.policypartners.com.au/assets/treasury---economic-incidence-of-taxes-(2015).pdf">illustrative</a>”. </p>
<h2>To sum up</h2>
<p>Stamp duties don’t push up the cost of housing. The claim that they impede household mobility is overblown. They do reduce asset churn, and as a result they help maintain price stability. </p>
<p>Their “revenue instability” is actually a huge positive for the economy as a whole. And the modelling that has underpinned the talk of high economy-wide costs is as good as made up.</p>
<p>Yet SD4LVT remains the apparent holy grail of Australian tax policy. </p>
<p>Our best policy wonks continue to push our politicians to use up the precious capital to swap one very good property tax for another, for no obvious economic gain.</p><img src="https://counter.theconversation.com/content/106841/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray is affiliated with the Sustainable Australia party. </span></em></p>The conventional case for swapping stamp duty for land tax will boost the economy has weak underpinnings.Cameron Murray, Lecturer in Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1053782018-11-01T03:53:47Z2018-11-01T03:53:47ZAbolish stamp duty. The ACT shows the rest of us how to tax property<figure><img src="https://images.theconversation.com/files/243391/original/file-20181101-173896-16lz7oq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The ACT has Australia's best state tax system, NSW the worst.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>This week we’re exploring the state of nine different policy areas across Australia’s states, as detailed in Grattan Institute’s State Orange Book 2018. Read the other articles in the series <a href="https://theconversation.com/au/topics/state-of-the-states-2018-61464">here</a></em>.</p>
<p>You might think that being a state (or territory) treasurer is a boring job. The federal treasurer gets all the media attention and controls many of the big economic levers, including income and company tax, massive Australia-wide spending and trade and competition policy. </p>
<p>But you would be wrong.</p>
<p>Grattan Institute’s <a href="https://grattan.edu.au/report/state-orange-book-2018/"><em>State Orange Book 2018</em></a> shows that if state treasurers relied less on taxes that hurt the economy and more on the ones that are the very best they could provide a huge boost to their economies. </p>
<h2>The big prize</h2>
<p>Almost every tax hurts economic growth, but some hurt more than others. </p>
<p>Our state treasurers know this, yet they continue to make poor choices.</p>
<p>Taxes on transactions, such as stamp duties on real estate purchases, are particularly inefficient.</p>
<p>They make it more expensive to move home to take a new job across town or in a different town, encouraging people to stay put. They make it more expensive to move into bigger or smaller homes, encouraging people to renovate instead.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/to-make-housing-more-affordable-this-is-what-state-governments-need-to-do-105050">To make housing more affordable this is what state governments need to do</a>
</strong>
</em>
</p>
<hr>
<p>With the typical stamp duty bill now above A$40,000 in Sydney and Melbourne, this is more than just an idle theory. </p>
<p>In contrast, taxes on land are <a href="https://grattan.edu.au/report/property-taxes/">extraordinarily efficient</a>, and council rates equally so. </p>
<hr>
<iframe src="https://datawrapper.dwcdn.net/NpOip/2/" scrolling="no" frameborder="0" allowtransparency="true" width="100%" height="284"></iframe>
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<h2>ACT is showing the way</h2>
<p>The Australian Capital Territory has Australia’s most efficient tax base – every dollar of revenue raised costs the economy just 21.9 cents. </p>
<p>New South Wales has the least efficient – every dollar of revenue raised costs the economy 29.7 cents. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=534&fit=crop&dpr=1 600w, https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=534&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=534&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=671&fit=crop&dpr=1 754w, https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=671&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/243371/original/file-20181101-78453-1gnjuck.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=671&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://grattan.edu.au/report/state-orange-book-2018/">Grattan Institute Orange Book 2018</a></span>
</figcaption>
</figure>
<hr>
<h2>While most states are going backwards</h2>
<p>Unfortunately, in most states taxes have became less efficient over the past five years. </p>
<p>Booming property prices in Sydney and Melbourne inflated stamp duties, giving them a growing share of the tax base in NSW and Victoria. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/243367/original/file-20181101-78447-1pk0y6g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Average excess burden of taxation cents per dollar of tax revenue collected in each state and territory (2006-2016)</span>
<span class="attribution"><a class="source" href="https://grattan.edu.au/report/state-orange-book-2018/">Grattan Institute Orange book 2008</a></span>
</figcaption>
</figure>
<hr>
<h2>They should copy the ACT</h2>
<p>All state treasurers should <a href="https://grattan.edu.au/news/following-the-act-land-tax-approach-boosts-growth-and-state-budgets/">follow the lead</a> of the ACT and replace stamp duties with broad-based property taxes. </p>
<p>Our calculations suggest that doing so could make Australians up to $17 billion a year better off, while also <a href="https://grattan.edu.au/news/housing-tax-reform-what-difference-will-it-make/">making housing more affordable</a>.</p>
<p>And stamp duties are unfair. They make some families pay more tax than others simply because they move home more often. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/infrastructure-splurge-ignores-smarter-ways-to-keep-growing-cities-moving-105051">Infrastructure splurge ignores smarter ways to keep growing cities moving</a>
</strong>
</em>
</p>
<hr>
<p>An annual flat tax <a href="https://grattan.edu.au/wp-content/uploads/2017/10/SA-Federalism-and-Tax-Future-Directions-for-Property-Tax-Reform-for-web-28-August-2017.pdf">set at between A$5 and A$7</a> for every A$1,000 of unimproved land value would be enough to fund the abolition of property stamp duties. </p>
<h2>Which won’t be easy</h2>
<p>Proposals to make the switch have stalled <a href="https://grattan.edu.au/wp-content/uploads/2017/10/SA-Federalism-and-Tax-Future-Directions-for-Property-Tax-Reform-for-web-28-August-2017.pdf">because the politics is hard</a>. </p>
<p>Recent purchasers would be reluctant to pay an annual tax so soon after paying stamp duty. A property tax would pose difficulties for people who are asset-rich but income-poor, especially retirees. </p>
<p>And property taxes cause angst: quarterly property tax bills remind people that they are taxpayers more often than does a one-off stamp duty with each purchase.</p>
<p>So state treasurers should make the switch gradually, <a href="https://grattan.edu.au/news/following-the-act-land-tax-approach-boosts-growth-and-state-budgets/">as in the ACT</a>: slowly wind back stamp duty and ramp up broad-based property tax over time. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-dangerous-fantasy-diverting-population-growth-to-the-regions-105052">Australia's dangerous fantasy: diverting population growth to the regions</a>
</strong>
</em>
</p>
<hr>
<p>It would provide the states with an increasingly stable revenue stream while reducing the disparity between those who bought a home just before the change and just afterwards. </p>
<p>To ensure that asset-rich but income-poor households could stay in their homes, state treasurers would have to allow them to defer paying the levy (with interest) until they sell their properties.</p>
<h2>And they should axe insurance tax</h2>
<p>State treasurers should also replace state taxes on property, life, health and motor vehicle insurance with a broad-based property levy. Most states have already abolished insurance levies to fund fire and emergency services. </p>
<p>Insurance taxes <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/Publications/Papers/Final_Report_Part_2/chapter_e8.htm">deter</a> people and businesses from buying adequate insurance, leaving them <a href="https://theconversation.com/properties-under-fire-why-so-many-australians-are-inadequately-insured-against-disaster-50588">exposed to risks</a> such as flood or fire damage to their home, or motor vehicle theft. </p>
<h2>And charge for rezoning</h2>
<p>And state treasurers should <a href="http://www.planning.act.gov.au/topics/design-and-build/fees/change_of_use_charge_-_lease_variation_charge">follow another ACT lead</a> and introduce explicit “betterment taxes” to capture some of the windfall gains from rezoning of land. </p>
<p>Government permission to build higher-density housing, or convert farmland into greenfield housing land, generates large unearned windfall gains for landowners. </p>
<p>Taxing these windfall gains would be a particularly efficient form of taxation, would reduce the opportunities for <a href="https://www.smh.com.au/business/the-economy/in-the-zone-insider-trading-rife-in-land-rezoning-racket-20150929-gjx8nh.html">corruption</a> in the planning system, and would enable state treasurers to reduce other more economically harmful and regressive taxes.</p>
<h2>And apply payroll tax widely</h2>
<p>Finally, state payroll taxes should be broadened by abolishing carve-outs for small businesses. </p>
<p>This would enable state treasurers to cut payroll tax rates across the board.</p>
<p>Generous thresholds and exemptions have weakened states’ payroll tax bases and <a href="https://www.murphyeconomics.com.au/Information/tax/ATF_Vol.33-1_2018_Murphy.pdf">increased</a> the economic costs of the tax. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/grattan-institute-orange-book-2018-state-governments-matter-vote-wisely-105376">Grattan Institute Orange Book 2018. State governments matter, vote wisely</a>
</strong>
</em>
</p>
<hr>
<p>Astoundingly, around 90% of NSW businesses <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_d3-2.htm">are exempt</a> from payroll tax.</p>
<p>We believe that, taken together, this set of reforms would make a big difference to economic growth. </p>
<p>Voters might even reward the treasurers and their premiers.</p><img src="https://counter.theconversation.com/content/105378/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.
The State Orange Book 2018, from which this article draws, was supported by a grant from the Susan McKinnon Foundation.
</span></em></p><p class="fine-print"><em><span>Brendan Coates and Tony Chen do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Grattan Institute says swapping stamp duty for land tax would make Australians up to $17 billion a year better off.Brendan Coates, Fellow, Grattan InstituteJohn Daley, Chief Executive Officer, Grattan InstituteTony Chen, Researcher, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031142018-09-12T13:20:23Z2018-09-12T13:20:23ZAnthill 29: Inheritance<figure><img src="https://images.theconversation.com/files/235990/original/file-20180912-133901-1qnyrtv.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C1000%2C881&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Gennadiy Solovyev/Shutterstock.</span></span></figcaption></figure><p>What do we pass onto the next generation when we’re gone? In this episode of The Anthill podcast we bring you three stories from academics who study aspects of inheritance – from inherited wealth, to the natural inheritance we leave our children, and the genetic inheritance held within our DNA. </p>
<p>The way countries tax inherited wealth varies widely across the world. In the UK, <a href="https://www.gov.uk/inheritance-tax">inheritance tax</a> is 40% on everything above a £375,000 threshold (for properties the threshold rises to £1m), yet it doesn’t exist in Australia and Canada and works differently in France and Scandinavia. In this episode, Janette Rutterford, professor of financial management at Open University, tracks the history of inheritance tax in the UK – and the loopholes people use to get around paying it. And we ask Danny Dorling, Halford Mackinder professor of geography at the University of Oxford whether inheritance tax is fit for purpose – and what could replace it. </p>
<hr>
<p><strong><em>Click <a href="https://theconversation.com/uk/podcasts/the-anthill">here</a> to listen to more episodes of The Anthill, on themes including <a href="https://theconversation.com/anthill-26-twins-98271">Twins</a>, <a href="https://theconversation.com/anthill-25-intuition-96677">Intuition</a>, and <a href="https://theconversation.com/anthill-27-confidence-100183">Confidence</a>. And browse <a href="https://theconversation.com/podcasts">other podcasts</a> from The Conversation here.</em></strong> </p>
<hr>
<p>In the second segment, we focus on natural inheritance. Mass extinctions of species mean that the wildlife our ancestors grew up with is vanishing and it may mean future generations are left with a smaller and emptier view of nature. Scientists believe our perception of nature and wilderness is shrinking, with each new generation inheriting a smaller picture of what a healthy ecosystem looks like. We ask biologists Lizzie Jones from Royal Holloway University and Chris Sandom from the University of Sussex to help explain the concept of this “shifting baseline syndrome”. And Newcastle University’s Niki Rust talks through one of the options for dealing with it – <a href="https://theconversation.com/uk/topics/rewilding-7773">rewilding</a>, and what happened to lions she observed who had been reintroduced into reserves in Africa. </p>
<p>Sandom and Jones have also written an accompanying article for The Conversation, showcasing <a href="https://theconversation.com/forget-environmental-doom-and-gloom-young-people-draw-alternative-visions-of-natures-future-102004">drawings by young people</a> of alternative visions for nature’s future – and graphic imaginings by the artist Daniel Locke on what Britain would have looked like hundreds of thousands of years ago.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Britain 125,000 years ago: giant deer, straight-tusked elephants and rhinos.</span>
<span class="attribution"><a class="source" href="http://www.daniellocke.com/">Daniel Locke</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In the final segment of this episode we delve into the debate on genes and intelligence – and whether children’s success at school depends on their DNA. Kaili Rimfeld, a postdoctoral researcher at King’s College London, explains her new study – <a href="https://theconversation.com/genes-shown-to-influence-how-well-children-do-throughout-their-time-at-school-102520">which you can read about on The Conversation</a> – which showed that genes influence how well children do throughout their time at school. She explains how twins studies have helped scientists to understand the “heritability” of intelligence, as well as <a href="https://theconversation.com/your-genes-can-help-predict-how-well-youll-do-in-school-heres-how-we-cracked-it-62848">new tools</a>, which are helping give more personalised predictions for educational achievement. </p>
<p>But some social scientists, including as Daphne Martschenko, a PhD researcher in education at the University of Cambridge, are concerned about the ethical implications of this line of research. She recounts the controversial history of research linking genes and intelligence – which she’s just written <a href="https://osf.io/preprints/socarxiv/74b8m/">a new paper</a> about – and why she’s concerned about how such research might trickle down into the classroom in future. </p>
<p><a href="https://itunes.apple.com/gb/podcast/the-anthill/id1114423002?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL3VrL3BvZGNhc3RzL3RoZS1hbnRoaWxsLnJzcw%3D%3D"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation/the-anthill"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/Technology-Podcasts/The-Anthill-p877873/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<hr>
<p><em>The Anthill theme music is by Alex Grey for Melody Loops.
Music in the inheritance tax segment <a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A list of ways to die</a> by Lee Rosevere and <a href="http://freemusicarchive.org/music/A_A_Aalto/Fest/Bazaar">Bazaar</a> by A.A.Alto, both from the Free Music Archive. Bird sounds in the shifting baseline segment is <a href="https://freesound.org/people/reinsamba/">Nightingales</a> by reinsamba and music is <a href="http://freemusicarchive.org/music/Podington_Bear/">Nature Kid</a> by Podington Bear via Free Music Archive. Music in the genes and intelligence segment is <a href="https://incompetech.com/music/royalty-free/index.html?isrc=USUAN1200102">Hidden Agenda</a> by Kevin MacLeod via Incompetech and <a href="http://freemusicarchive.org/music/Kai_Engel/The_Scope/Kai_Engel_-_The_Scope_-_02_Cutrains_are_Always_Drawn">Curtains Are Always Drawn</a> by Kai Engel. Archive audio on the Human Genome Project from the <a href="https://videocast.nih.gov/summary.asp?Live=2405&bhcp=1">US Department of Health & Human Services</a>.</em></p>
<p><em>Thank you to City, University of London’s Department of Journalism for letting us use their studios to record The Anthill. And to Anouk Millet who helped with editing and production for this episode.</em></p><img src="https://counter.theconversation.com/content/103114/count.gif" alt="The Conversation" width="1" height="1" />
From wealth, to the natural world, to genes and intelligence, a podcast exploring the theme of inheritance.Will de Freitas, Environment + Energy Editor, UK editionAnnabel Bligh, Business & Economy Editor and Podcast Producer, The Conversation UKGemma Ware, Head of AudioJack Marley, Environment + Energy Editor, UK editionLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/807422017-07-16T20:04:22Z2017-07-16T20:04:22ZTaxing empty homes: a step towards affordable housing, but much more can be done<figure><img src="https://images.theconversation.com/files/177992/original/file-20170713-9462-1n2hcla.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Vacant and unlit 'ghost' apartments are a source of public outrage in major cities around the world.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/leniners/4954648714/in/photolist-8xPSrQ-8Hk8gf-gnGoVD-gpaC2C-9qUkq4-5iBTHG-jSCfAF-bk4jYN-a2A4rY-8Mgbra-Nv9BK-abZYbG-6x2sqK-8cMY8y-b6p5F2-gnGycq-7h3Pi5-a2A5kG-BNb5y7-4wyd9p-8Mkydu-4Xm9Mz-8HgYNg-gBybkD-8Vu1Qj-8Mh8PP-3Joxne-8MjC3L-dXfvjw-7NQu83-7gYRaT-7NQqH5-5HMXdr-8Hk6fo-8hMmWW-CKkpTr-DgvZv3-DbxWAX-DiQfs8-DgvXry-rWHdWJ-CKkoBD-CKkraK-D9ZuRF-sc1Bgy-BX1N5w-GJFc3-LDsSSE-mGmXrX-mGoStf">leniners/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Vacant housing rates <a href="http://www.abc.net.au/news/2017-06-27/home-ownership-rates-continue-to-plunge-census/8654534">are rising</a> in our major cities. Across Australia on census night, <a href="https://www.corelogic.com.au/news/three-unique-housing-insights-from-the-2016-census">11.2% of housing</a> was recorded as unoccupied – a total of 1,089,165 dwellings. With housing <a href="https://www.ahuri.edu.au/policy/ahuri-briefs/2016/3040-indicator">affordability stress</a> also <a href="http://www.abc.net.au/news/2017-06-27/home-ownership-rates-continue-to-plunge-census/8654534">intensifying</a>, the moment for a push on empty property taxes looks to have arrived. </p>
<p>The 2016 Census showed empty property numbers up by 19% in Melbourne and 15% in Sydney over the past five years alone. Considering that thousands of people sleep rough – almost 7,000 <a href="http://abs.gov.au/ausstats/abs@.nsf/Latestproducts/2049.0Main%20Features22011">on census night in 2011</a>, more than 400 per night <a href="http://www.cityofsydney.nsw.gov.au/community/community-support/homelessness/street-count">in Sydney in 2017</a> – and that hundreds of thousands face <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/2049.0Feature%20Article12011">overcrowded homes</a> or <a href="https://theconversation.com/two-pictures-of-rental-housing-stress-and-vulnerability-zero-in-on-areas-of-need-77714">unaffordable rents</a>, these seem like cruel and immoral revelations.</p>
<p>Public awareness of unused homes has been growing in Australia and <a href="http://www.newsweek.com/2015/04/24/hidden-costs-ghost-apartments-322264.html">globally</a>. In <a href="https://www.theguardian.com/uk-news/2015/jan/25/its-like-a-ghost-town-lights-go-out-as-foreign-owners-desert-london-homes">London</a>, <a href="https://thetyee.ca/News/2016/03/08/Vancouver-Empty-Condos/">Vancouver</a> and elsewhere – just as in <a href="http://www.sbs.com.au/news/article/2017/03/01/fears-new-homes-being-left-empty-housing-prices-soar">Sydney</a> and <a href="https://www.prosper.org.au/2015/12/09/almost-20pc-of-melbournes-investor-owned-homes-empty/">Melbourne</a> – the night-time spectacle of dark spaces in newly built “luxury towers” has triggered outrage.</p>
<p>This has struck a chord with the public not only because of its connotations of obscene wealth inequality and waste, but also because of the <a href="http://www.afr.com/news/politics/scott-morrison-targets-foreign-investors-who-keep-properties-vacant-20170409-gvhgju">contended link to foreign ownership</a>.</p>
<h2>Early movers on vacancy tax</h2>
<p>Against this backdrop, the Victorian state government has felt <a href="https://www.theguardian.com/australia-news/2017/mar/06/victoria-to-tax-investors-who-leave-properties-vacant-for-more-than-six-months">sufficiently emboldened</a> to <a href="http://www.legislation.vic.gov.au/domino/Web_Notes/LDMS/PubPDocs.nsf/ee665e366dcb6cb0ca256da400837f6b/444d40b3758ade25ca2581130075383a!OpenDocument">legislate</a> an empty homes tax. Federally, the shadow treasurer, Chris Bowen, <a href="http://www.smh.com.au/federal-politics/political-news/labor-hits-foreigners-vacant-properties-and-super-funds-in-housing-affordability-package-20170420-gvolrj.html">recently backed</a> a standard vacant dwelling tax across all the nation’s major cities. </p>
<p>Similar measures have come into force in <a href="http://www.cbc.ca/news/canada/british-columbia/number-of-empty-homes-in-vancouver-hits-record-high-1.4175999">Vancouver</a> and <a href="http://www.telegraph.co.uk/news/2017/01/27/britons-property-paris-hit-new-tax-hike/">Paris</a>. And Ontario’s provincial government <a href="http://www.cbc.ca/news/canada/toronto/wynne-housing-market-1.4077094">recently granted</a> Toronto new powers to tax empty properties
.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=643&fit=crop&dpr=1 600w, https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=643&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=643&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=808&fit=crop&dpr=1 754w, https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=808&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/177995/original/file-20170713-12241-ybvqah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=808&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Both Vancouver (above) and Melbourne now have a 1% capital value charge on homes left vacant.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/tim_welbourn/22455459392/in/photolist-Adj6JY-CXpZJA-CytEqn-PZ1ZzA-F6psUP-tHSu6a-QfKWbM-PS7GcE-QG7hfQ-MFKS1d-oP93bh-jTUeF7-VjaqxR-pd3pxQ-q4YhMv-nfFjeY-nfFeNU-nhJ62Z-nfF9rS-n3vWgm-o3gd6o-RVnQWb-n3ubEX-n3w7xU-n3uq8B-nfFjnT-n3upv4-n3usNM-nfFfa4-n3vXeU-n3uh5V-qFPs5t-n3uuFp-n3utFP-pj2YSZ-n3uwRt-n3uwca-qi7TCa-nquxBY-n3uxb4-FqSWC3-n3w5MQ-oMWgFi-q57iW5-n3ukg2-q7FYuX-n3ujvK-n3w2yq-n3w1LU-n3uk38">Tim Welbourn/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>Emulating Vancouver, <a href="http://www.sro.vic.gov.au/news/new-measures-vacant-property-melbourne">Victoria’s tax</a> is a 1% capital value charge on homes vacant for at least six months in a year. Curiously, though, it applies only in Melbourne’s inner and middle suburbs. And there are exceptions – if the property is a grossly under-used second home you pay only if you’re a foreigner. </p>
<p>Also, as in Vancouver, tax liability relies on self-reporting, which is seemingly a loophole. This might be less problematic if all owners were required to confirm their properties were occupied for at least six months of the past year. But that would be administratively cumbersome. </p>
<p>This highlights a broader “practicability challenge” for empty property taxes. For example, how do you define acceptable reasons for a property being empty? </p>
<p>In principle, such a tax should probably be limited to habitable dwellings. So, if you own a speculative vacancy, what do you do? Remove the kitchen sink to declare it unliveable?</p>
<h2>How can we be sure a home is empty?</h2>
<p>Lack of reliable data on empty homes is a major problem in Australia. Census figures are useful mainly because they indicate trends over time, but they substantially overstate the true number of long-term vacant habitable properties because they include temporarily empty dwellings (including second homes). </p>
<p>Using Victorian water records, <a href="https://www.domain.com.au/news/empty-homes-the-economic-reasons-behind-investors-keeping-properties-vacant-20170404-gvdc7l/">Prosper Australia estimates</a> about half of Melbourne’s census-recorded vacant properties are long-term “speculative vacancies”. That’s 82,000 homes. </p>
<p>Applying a similar “conversion factor” to Sydney’s census numbers would indicate around 68,000 speculative vacancies. Australia-wide, the Prosper Australia findings imply around 300,000 speculative vacancies – 3% of all housing. That’s equivalent to two years’ house building at current rates.</p>
<p>According to University of Queensland real estate economics expert Cameron Murray, a national tax that entirely eliminated this glut might <a href="https://www.domain.com.au/news/empty-homes-the-economic-reasons-behind-investors-keeping-properties-vacant-20170404-gvdc7l/">moderate the price of housing by 1-2%</a>. Therefore, although worthwhile, dealing with this element of our inefficient use of land and property would provide only a small easing of Australia’s broader affordability problem.</p>
<h2>Making better use of a scarce resource</h2>
<p>Taxing long-term empty properties is consistent with making more efficient use of our housing stock – a scarce resource. A big-picture implication is that tackling Australia’s housing stress shouldn’t be seen as purely about boosting new housing supply – <a href="https://theconversation.com/if-youre-serious-about-affordable-sydney-housing-premier-heres-a-must-do-list-71791">as commonly portrayed by governments</a>. </p>
<p>It should also be about making more efficient and equitable use of existing housing and housing-designated land.</p>
<p>Penalising empty dwellings is fine if it can be practicably achieved. That’s especially if the revenue is used to enhance the <a href="https://theconversation.com/australia-needs-to-reboot-affordable-housing-funding-not-scrap-it-72861">trivial amount of public funding</a> going into building affordable rental housing in most of our states and territories. </p>
<p>But empty homes represent just a small element of our increasingly inefficient and wasteful use of housing and the increasingly unequal distribution of our national wealth.</p>
<p>One aspect of this is the under-utilisation of occupied housing. Australian Bureau of Statistics survey data show that, across Australia, more than a million homes (mainly owner-occupied) have <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/4130.02013-14?OpenDocument">three or more spare bedrooms</a>. A comparison of the latest statistics (for 2013-14) with <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/4130.02007-08?OpenDocument">those for 2007-08</a> suggests this body of “grossly under-utilised” properties grew by more than 250,000 in the last six years.</p>
<p>Our tax system does nothing to discourage this increasingly wasteful use of housing. It’s arguably encouraged by the “tax on mobility” constituted by stamp duty and the exemption of the family home <a href="http://theconversation.com/lets-talk-about-the-family-home-and-its-exemption-from-the-pension-means-test-61736">from the pension assets test</a>. </p>
<p>A parallel issue is the speculative land banks owned by developers. The volume of development approvals far exceeds the amount of actual building. In the past year in Sydney, for example, 56,000 development approvals were granted – <a href="http://www.planning.nsw.gov.au/Research-and-Demography/Research/Housing-Monitor-Reports/Metropolitan-Housing-Monitor-Sydney-Region">but only 38,000 homes were built</a>. </p>
<p>In many cases, getting an approval is just part of land speculation. The owner then hoards the site until “market conditions are right” for on-selling as approved for development at a fat profit.</p>
<p>Properly addressing these issues calls for something much more ambitious than an empty property tax. The federal government should be encouraging all states and territories to follow the <a href="https://grattan.edu.au/news/following-the-act-land-tax-approach-boosts-growth-and-state-budgets/">ACT’s lead</a> by phasing in <a href="http://blogs.unsw.edu.au/cityfutures/blog/2017/03/by-far-and-away-the-biggest-housing-tax-reform-prize-on-offer/">a broad-based land tax</a> to replace stamp duty.</p>
<p>Such a tax will provide a stronger financial incentive to make effective use of land and property. The <a href="https://grattan.edu.au/news/following-the-act-land-tax-approach-boosts-growth-and-state-budgets/">Grattan Institute estimates</a> this switch would also “add up to A$9 billion annually to gross domestic product”. How much longer can we afford to ignore this obvious policy innovation?</p>
<hr>
<p><em>Acknowledgements: Thanks to Laurence Troy for statistics and Julie Street for background research.</em></p><img src="https://counter.theconversation.com/content/80742/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hal Pawson receives funding from the Australian Housing and Urban Research Institute (AHURI), the Australian Research Council (ARC) and Launch Housing (Melbourne)</span></em></p>A tax on empty homes will make a modest difference to housing affordability. The sheer wastefulness of our housing system calls for something much more ambitious.Hal Pawson, Associate Director - City Futures - Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/777142017-05-17T20:17:21Z2017-05-17T20:17:21ZTwo pictures of rental housing stress and vulnerability zero in on areas of need<figure><img src="https://images.theconversation.com/files/169443/original/file-20170516-11937-1fbeep8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Rental Vulnerability Index for Queensland shows the cumulative impact of factors affecting renters across the state.</span> <span class="attribution"><a class="source" href="https://cityfutures.be.unsw.edu.au/cityviz/rental-vulnerability-index/">City Futures Research Centre</a></span></figcaption></figure><p>Two new tools for measuring and visualising problems in our rental housing system are in the media this week. They have similar names – the <a href="https://www.sgsep.com.au/maps/RAI.html">Rental Affordability Index (RAI)</a> and the <a href="https://cityfutures.be.unsw.edu.au/cityviz/rental-vulnerability-index/">Rental Vulnerability Index (RVI)</a> – but use different methods to offer distinct but complementary perspectives. Together they reveal that almost nowhere in our capital cities can low-income households – and those on average incomes in Sydney – afford the median rent. Mapping rental vulnerability reveals households in regional areas are struggling too.</p>
<p>The RAI is a project of <a href="http://www.shelter.org.au/">National Shelter</a>, the peak housing NGO, and SGS Economics and Planning. It gives us a bird’s-eye view of rental housing costs over most of Australia. It does this by showing how affordable the median rent (the midpoint of all rents) is – or isn’t – relative to incomes in each postcode.</p>
<p>An alternative approach considers where and in what proportion renters are actually in stress. We might also consider a range of other factors that indicate where and in what proportion renters are vulnerable to problems in accessing and keeping decent, secure housing. This is <a href="https://cityfutures.be.unsw.edu.au/research/projects/queensland-rental-vulnerability-index/">the approach we’ve taken</a> with the RVI.</p>
<h2>What does the RAI tell us?</h2>
<p>Affordability is a relative concept – it is about costs relative to incomes. The RAI considers median rents higher than 30% of a household’s income to be unaffordable. The index shows other grades either side of this benchmark (very affordable, very unaffordable) too. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=291&fit=crop&dpr=1 600w, https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=291&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=291&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=365&fit=crop&dpr=1 754w, https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=365&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/169266/original/file-20170515-3668-qveg8h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=365&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Rental Affordability Index web tool zoomed in on Queensland.</span>
<span class="attribution"><span class="source">SGS Economics and Planning</span></span>
</figcaption>
</figure>
<p>This is consistent with a widely used benchmark in housing policy, often known as the “<a href="http://www.ahuri.edu.au/policy/ahuri-briefs/2016/3040-indicator">30/40 rule</a>”: housing costs should not exceed 30% of income for households in the lowest 40% of incomes.</p>
<p>The rationale is that when low-income households have to spend more than that on housing, they start to go without other things – meals, health care, outings – that they reasonably ought to have. For this reason, low-income households in unaffordable housing are said to be in “housing stress” or “rental stress”. </p>
<p>The RAI looks at median rents, not the rents individual households are paying. This means it doesn’t tell us where or how many households are actually in rental stress. But it does indicate where renters face different degrees of pressure, in terms of either rents or constraints on the size, quality or location of dwellings. </p>
<p>So, looking at the affordability of median rents for a number of typical low-income households – single and couple pensioners, single people on benefits, single-parent part-time workers – the RAI shows that almost nowhere in Australia’s capital cities is the median rent affordable for them. </p>
<p>The RAI also applies the 30% benchmark higher up the income scale. Even for average-income renters, all Sydney postcodes – except for Mt Druitt and in the Blue Mountains – have median rents that are unaffordable or worse. </p>
<p>Of the capitals, Sydney’s affordability problems are deepest and spread furthest, but much of Melbourne and Brisbane is unaffordable to average renters too. Outside the capitals, most of the regions are affordable. </p>
<p>The quick takeaway from this perspective would be support for policies to increase the supply of affordable rental housing, particularly in our capital cities. These measures would include:</p>
<ul>
<li><p>building <a href="https://theconversation.com/budget-2017-charts-new-social-and-affordable-housing-agenda-76794">more social housing</a></p></li>
<li><p>changing planning rules to allow more residential development</p></li>
<li><p>using <a href="https://theconversation.com/sydney-needs-higher-affordable-housing-targets-69207">inclusionary zoning</a> to ensure a proportion of new development is kept as affordable rental</p></li>
<li><p>making greater use of <a href="http://blogs.unsw.edu.au/cityfutures/blog/2016/04/the-tax-reform-right-under-turnbulls-nose/">land tax</a>, including on owner-occupied housing, to ensure land owners don’t speculatively sit on development opportunities.</p></li>
</ul>
<h2>What does the RVI tell us?</h2>
<p>For a different perspective, the City Futures Research Centre <a href="https://cityfutures.be.unsw.edu.au/research/projects/queensland-rental-vulnerability-index/">produced</a> the <a href="https://cityfutures.be.unsw.edu.au/cityviz/rental-vulnerability-index/">Rental Vulnerability Index (RVI)</a> for <a href="https://tenantsqld.org.au/">Tenants Queensland</a>. This shows (only for Queensland, at this stage) a range of “housing system” and “personal” factors that we know, based on a wider body of research on housing and <a href="http://www.lawfoundation.net.au/ljf/app/&id=EDD640771EA15390CA257A9A001F7D08">legal needs</a>, indicate vulnerability to housing problems. </p>
<p>The housing system indicators include: rental stress, availability of rental housing that is affordable on local incomes, social housing and marginal tenures such as boarding houses, as well as personal indicators including unemployment, low education, disability, single-parent households and both young and elderly renters. </p>
<p>As well as mapping each of these indicators, the RVI uses principal component analysis. This enables us to look across the indicators to see where they cluster together as a generalised “rental vulnerability”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/169265/original/file-20170515-3649-1s65oqm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Rental Vulnerability Index web tool.</span>
<span class="attribution"><span class="source">City Futures Research Centre</span></span>
</figcaption>
</figure>
<p>Mapping this out we see that rental vulnerability in Queensland is highest in the regions. In particular, it is high around Bundaberg, Fraser Coast and Gympie, with a band of vulnerability skirting the regions west and south of Brisbane. Cairns also has several highly vulnerable postcodes. </p>
<p>These places have high rates of unemployment, disability, low education and older people in rental housing. They also have high incidence of rental stress – even though median rents are low compared to Brisbane. </p>
<p>By contrast, Brisbane generally scores quite low on rental vulnerability. This isn’t because there aren’t any vulnerable households there – there are. But their presence is masked by renter households who are doing well in terms of income, employment, education and other indicators. </p>
<p>There is a substantial body of research on the “<a href="http://dx.doi.org/10.1080/08111146.2016.1221337">suburbanisation of disadvantage</a>”. This is the phenomenon of high housing costs pushing out, and shutting out, low-income and otherwise disadvantaged households from city centres. The RVI indicates that this process, at least in Queensland, is extending into a “regionalisation of disadvantage”.</p>
<h2>So what can we do about this?</h2>
<p>The takeaway from this? Housing problems are multidimensional and extend beyond the capital cities. </p>
<p>Regional areas have a pressing need for services – such as tenants advice services – that give vulnerable households material assistance in dealing with housing problems. </p>
<p>But more than that, we need to build up the economic and social capital of these places – so that they offer greater opportunities for the vulnerable households who are concentrated there – just as we need policies to increase affordable housing opportunities in our cities.</p><img src="https://counter.theconversation.com/content/77714/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Martin receives funding from the Australian Housing and Urban Research Institute, and previously received funding from Tenants Queensland.</span></em></p><p class="fine-print"><em><span>Laurence Troy receives funding from the Australian Housing and Urban Research Institute, and previously received funding from Tenants Queensland.</span></em></p>Almost nowhere in our capital cities can low-income households – and those on average incomes in Sydney – afford the median rent. Mapping rental vulnerability finds it in regional areas too.Chris Martin, Research Fellow, City Housing, UNSW SydneyLaurence Troy, Research Fellow, City Futures Research Centre, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/770102017-05-08T19:44:36Z2017-05-08T19:44:36ZTax on ‘unearned gains’ is the missing piece of the affordable housing puzzle<p>With housing prices <a href="https://www.theguardian.com/business/2017/apr/04/reserve-bank-head-warns-house-price-speculation-is-a-risk-to-australian-economy">still consistently in the news</a>, could the ideas of 19th-century philosopher John Stuart Mill help improve affordability? </p>
<p>In 2015, some landowners near the <a href="http://nbhsredev.health.nsw.gov.au/project/northern-beaches-hospital/">proposed Northern Beaches hospital</a> in Sydney were offered more than <a href="http://www.dailytelegraph.com.au/newslocal/northern-beaches/developers-are-targeting-homes-near-the-planned-new-northern-beaches-hospital-offering-millions/news-story/e9eed1f7361ffde4d1019e3645f61aae">twice the area’s normal market value</a> for their properties. They stood to make large windfall profits from zoning changes and <a href="http://www.rms.nsw.gov.au/projects/sydney-north/northern-beaches-hospital/">infrastructure upgrades</a> associated with the <a href="http://www.smh.com.au/nsw/revealed-the-real-2-billion-cost-of-privatised-northern-beaches-hospital-20150430-1mxgqd.html">A$1 billion-plus public investment</a> in the hospital.</p>
<p>While many may say “good luck to them”, Mill – a champion of individual freedom – may well have questioned those windfall profits by asking: </p>
<blockquote>
<p>Who is entitled to the increase in land value created by planning approvals, new infrastructure, population growth or the general development of town and cities?</p>
</blockquote>
<p>For Mill, the answer would have been that the increase, which he called the “unearned increment”, rightly <a href="http://www.econlib.org/library/Mill/mlP64.html">belongs to the community</a> rather than the individual landowner. Until well into the 20th century, many political leaders, including <a href="http://s420649894.websitehome.co.uk/SLRG/attachments/article/10/What%20Winston%20Churchill%20said%20about%20Land%20and%20Taxes.pdf">Winston Churchill</a>, agreed with Mill.</p>
<h2>What’s this got to do with housing affordability?</h2>
<p>The main reason Australians invest in property is the expectation of <a href="https://www.ahuri.edu.au/__data/assets/pdf_file/0020/2963/AHURI_RAP_Issue_115_What-motivates-households-to-invest-in-the-private-rental-market.pdf">future (after-tax) capital gains</a> (that is, unearned increments) rather than rental income. Consequently, they are willing to pay more than the price that reflects rental income. </p>
<p>The current taxation system, while imposing some tax on capital gains, <a href="http://www.acoss.org.au/images/uploads/Fuel_on_the_fire.pdf">encourages this strategy</a>, mainly through negative gearing and a discount on capital gains tax. The federal government’s 2014 <a href="http://fsi.gov.au/publications/final-report/">Financial System Inquiry</a> concluded:</p>
<blockquote>
<p>The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment in housing.</p>
</blockquote>
<p>Could recouping more of Mill’s unearned increments through a higher capital gains tax on investor housing help make housing more affordable?</p>
<p>The Henry tax review accepted that a tax on land value would <a href="https://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_c2-1.htm">reduce the price</a> buyers were willing to pay. The same principle would apply to a tax on capital gains from land, which could be seen as a type of deferred land value tax. The Reserve Bank of New Zealand also expects that increasing taxes on <a href="http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Speeches/2015/action-needed-to-reduce-housing-imbalances.pdf?la=en">capital gains from property</a> would reduce pressure on housing prices.</p>
<h2>How to recoup more of the ‘unearned increment’</h2>
<p>A federal capital gains tax (CGT) was introduced in Australia in 1985, with capital gains <a href="https://www.ato.gov.au/General/Capital-gains-tax/">added to other income</a>. Since 1999, capital gains may qualify for a <a href="https://www.ato.gov.au/General/capital-gains-tax/cgt-exemptions,-rollovers-and-concessions/">50% discount</a> for taxation purposes.</p>
<p>Capital gains are taxed at the individual’s tax rate, providing an incentive to time the sale of the asset or use other means to minimise the impact of the CGT.</p>
<p>Therefore, to be more effective in reducing land prices, CGT on property would need to be reformed so it applies at a flat rate (without deductions) rather than being part of general income. Notably, this reformed CGT would capture some of the land value increases resulting from planning approvals.</p>
<p>The flat tax rate could be progressively increased from a lower rate during an adjustment period. Each step in the transition could be evaluated for its effect on prices.</p>
<p>Because Mill’s unearned increments relate to land only, the property CGT would be levied on the increase in the unimproved value of the land (indexed for inflation). That is, it would exclude the value of improvements. The principal residence would continue to be excluded, and tax would be payable only when the property was sold.</p>
<h2>Capital gains tax or land value tax?</h2>
<p>The <a href="https://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_c2-1.htm">Henry review</a> and <a href="https://theconversation.com/a-land-value-tax-could-fix-australasias-housing-crisis-49997">other commentators</a> agree that a land value tax would reduce property prices. This tax would necessarily include all landowners.</p>
<p>In comparison, the proposed CGT reform would also be likely to reduce land prices, but would, in practice, affect investors only. Relocating homeowners would not be affected as the lower prices would be on both sides of the buying-selling equation.</p>
<p>In summary:</p>
<ul>
<li><p>Housing not only provides shelter but is also a form of investment.</p></li>
<li><p><a href="https://theconversation.com/explainer-the-financialisation-of-housing-and-what-can-be-done-about-it-73767">Favouring investment over shelter</a> – as current tax policies <a href="http://fsi.gov.au/publications/final-report/">do</a> – tends to raise property prices and to <a href="https://grattan.edu.au/wp-content/uploads/2014/03/800_Renovating_Housing.pdf">crowd out</a> some of those wanting to own their own home and so have a better chance of putting down roots in their selected local community.</p></li>
<li><p>Making housing more affordable, such as by more effective taxing of capital gains, would promote a more “<a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/hsaf/report/c02">cohesive and just society</a>”, as a 2008 Senate inquiry into housing affordability found.</p></li>
<li><p>Most investors are motivated by expectations of future after-tax capital gains and so moderating those expectations by raising the tax on capital gains from land is likely to reduce the price investors would be prepared to pay.</p></li>
<li><p>A period of transition would be needed to allow property investors to adjust to the new arrangements.</p></li>
</ul>
<p>As Mill observed, these capital gains are created by others – governments, immigrants and other private investors – so there is an ethical basis for effectively taxing these “unearned” gains.</p><img src="https://counter.theconversation.com/content/77010/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Feeney is affiliated with the Gold Coast and Hinterland Environment Council as a volunteer </span></em></p>Who is entitled to the increase in value created by planning approvals, new infrastructure, population growth or urban development? For John Stuart Mill, the answer would have been the community.Brian Feeney, Adjunct Fellow, School of Earth and Environmental Sciences, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/769312017-05-05T00:05:44Z2017-05-05T00:05:44ZWhy older Australians don’t downsize and the limits to what the government can do about it<figure><img src="https://images.theconversation.com/files/167831/original/file-20170504-27085-1auciuu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Older Australians are not deterred by financial barriers as much as emotional ones, when it comes to downsizing.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Encouraging senior Australians to downsize their homes is one of the <a href="http://insidestory.org.au/options-for-housing-affordability-the-good-the-bad-and-the-cosmetic">more popular ideas</a> to make housing more affordable. The trouble is, incentives for downsizing would hit the budget, but make little difference to housing affordability.</p>
<p>It sounds good: new incentives would encourage seniors to move to housing that better suits their needs, while freeing up equity for their retirement and larger homes for younger families. </p>
<p>But the reality is different. <a href="http://www.ahuri.edu.au/__data/assets/pdf_file/0012/2181/AHURI_Final_Report_No214_Downsizing-amongst-older-Australians.pdf">Research shows</a> most seniors are emotionally attached to their home and neighbourhood and don’t want to downsize. </p>
<p>When people do downsize, financial incentives are generally not the big things on their minds. And so most of the budget’s financial incentives will go to those who were going to downsize anyway.</p>
<h2>Financial barriers to downsizing</h2>
<p>There are three financial hurdles to downsizing. Downsizers risk losing some or all of their Age Pension, because the family home is <a href="http://www.smh.com.au/money/planning/the-truth-about-home-ownership-and-the-age-pension-20160909-grd5pz.html">exempt from the pension assets test,</a> but any home equity unlocked by downsizing is not. </p>
<p>Downsizers also have to stump up the stamp duty on any new home they buy. For a senior purchasing the <a href="https://www.corelogic.com.au/news/capital-city-dwelling-values-increasing-at-fastest-annual-rate-since-may-2010">median-priced home</a> in Sydney that’s <a href="https://www.apps08.osr.nsw.gov.au/erevenue/calculators/landsalesimple.php">now A$32,000</a>. Finally earnings from the cash released are taxed, whereas capital gains on the home are not.</p>
<p>The Turnbull government has flagged the possibility of financial incentives in next week’s federal budget for <a href="http://www.afr.com/news/politics/govt-considers-super-breaks-for-downsizers-20170425-gvrr0t">superannuants</a> and pensioners to downsize their home. </p>
<p>One proposal would exempt downsizers from the A$1.6 million cap on super balances eligible for tax-free earnings in retirement, or from the A$100,000 annual cap on post-tax contributions. But this would benefit only the very wealthiest retirees – <a href="https://grattan.edu.au/wp-content/uploads/2016/09/876-A-better-super-system.pdf">just 60,000 retirees have super fund balances exceeding A$1.6 million</a>. </p>
<p>More seniors would benefit from a proposal to exempt them <a href="http://www.theaustralian.com.au/national-affairs/treasury/scott-morrisons-cradletograve-housing-plan/news-story/2ada2e09bbeaf8bcda6fc513d35b4081?nk=21bd5293c6c9bf91e73e578611f79538-1493642035">from stamp duty</a> when purchasing a smaller home. And many would benefit from a Property Council proposal to <a href="https://propertycouncil.com.au/Web/Content/News/National/2016/Unlocking_home_equity_in_retirement.aspx">quarantine some portion</a> of the proceeds from the pension assets test for up to a decade. </p>
<p>The trouble with all these proposals is that they would hit the budget – because everyone who downsized would get the benefits – but they would not encourage many more seniors to downsize. </p>
<h2>Staying - or downsizing – is seldom about the money</h2>
<p><a href="http://www.ahuri.edu.au/__data/assets/pdf_file/0012/2181/AHURI_Final_Report_No214_Downsizing-amongst-older-Australians.pdf">Research shows</a> that for two-thirds of older Australians, the desire to “age in place” is the most important reason for not selling the family home. Often they stay put because they can’t find suitable housing in the same local area.</p>
<p><a href="http://insidestory.org.au/options-for-housing-affordability-the-good-the-bad-and-the-cosmetic">In established suburbs</a> where many seniors live, there are relatively few smaller dwellings because planning laws restrict subdivision. And even if the new house is next door, there’s an emotional cost to leaving a long-standing home, and to packing and moving. </p>
<p>And so, few older Australians downsize their home. According to the Productivity Commission, <a href="http://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians-survey-results-presentation.pdf">about 20% aged 60 or over</a> have sold their home and purchased a less expensive one since turning 50. Another 15% have “strong intentions” to do so in the future. </p>
<p>When older Australians do downsize, their decision is dominated by non-financial considerations, such as a preference for a different style of house and living, a concern that it is getting too hard to maintain the house and garden, or the loss of a partner.</p>
<p>These emotional factors typically dwarf financial considerations. According to <a href="http://www.ahuri.edu.au/__data/assets/pdf_file/0012/2181/AHURI_Final_Report_No214_Downsizing-amongst-older-Australians.pdf">surveys</a>, no more than 15% of downsizers are motivated by financial gain. Stamp duty costs were a barrier for only about 5% of those thinking of downsizing. Only 1% of seniors listed the impact on their pension as their main reason for not downsizing.</p>
<h2>There are better and cheaper ways to encourage seniors to downsize</h2>
<p>If governments do want to use financial incentives to encourage downsizing, budget sticks would be cheaper and fairer than budget carrots. Even if they have little effect on downsizing rates, at least they would contribute to much-needed budget repair and economic growth.</p>
<p>The federal government should include the value of the family home above some threshold – such as A$500,000 – in the Age Pension assets test. This would encourage a few more seniors to downsize. More importantly, it would make pension arrangements fairer, and contribute <a href="https://grattan.edu.au/news/australia-should-recover-pension-payments-from-estates/">up to A$7 billion a year</a> to the budget. </p>
<p>Asset-rich, income-poor retirees could continue to receive a full pension by borrowing against the value of the home until the house is sold. The federal government would then recover the cost from the proceeds of the sale. If well designed, this scheme would have almost no effect on retirees – instead it would primarily reduce inheritances.</p>
<p>State governments should abolish stamp duties on property, and replace them with a general property tax, <a href="https://grattan.edu.au/news/following-the-act-land-tax-approach-boosts-growth-and-state-budgets/">as the ACT Government is doing</a>. This would encourage downsizing, although only at the margins. </p>
<p>But the real policy justification is that it would help working age households to <a href="http://www.smh.com.au/comment/nsw-budget-2015-its-time-to-get-rid-of-stamp-duty-20150623-ghvq57.html">take a better job that’s only accessible by moving house</a>, and so improve economic growth. It’s a big prize: a national shift from stamp duties to broad-based property taxes could add <a href="https://grattan.edu.au/report/property-taxes/">up to A$9 billion a year</a> to the economy. </p>
<p>In short, the downsizing debate is a prime example of how <a href="http://insidestory.org.au/options-for-housing-affordability-the-good-the-bad-and-the-cosmetic">governments prefer politically easy options with cosmetic appeal</a>, but little real effect, on housing affordability. If they’re serious about making it easier for young Australians to buy a home, they will have to make <a href="http://insidestory.org.au/options-for-housing-affordability-the-good-the-bad-and-the-cosmetic">tougher policy choices</a>.</p><img src="https://counter.theconversation.com/content/76931/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Brendan Coates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When people do downsize, financial incentives are generally not the big things on their minds. And so most of the budget’s financial incentives will go to those who were going to downsize anyway.Brendan Coates, Fellow, Grattan InstituteJohn Daley, Chief Executive Officer, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/737512017-04-09T19:58:10Z2017-04-09T19:58:10ZWhat housing issues should the budget tackle? This is what our experts say<p>The Conversation has published many articles by Australia’s foremost academics on policies that affect housing. In the lead-up to expected announcements in the federal budget in May, we review the arguments in the articles since January 2016 – 81 were identified, of which 58 concerned housing policy.</p>
<p>This article focuses on the most frequently mentioned aspects of housing policies and other policies that had unintended effects on housing – fiscal policy, land supply and planning approvals, and affordable housing. A concern with politics and inequality was a consistent theme. Recent articles have discussed a possible housing bubble.</p>
<p>This article considers demand-side market distortion, supply-side blaming, and inequality. The second article will consider housing affordability and prospective policy changes.</p>
<h2>Demand-side distortions</h2>
<p>The discussion of fiscal issues most often involves the following government responsibilities:</p>
<ul>
<li><p>negative gearing and capital gains tax exemptions – a federal responsibility;</p></li>
<li><p>stamp duty (state government); and</p></li>
<li><p>the need to replace stamp duty with land taxes and to implement value-capture taxes on unearned rises in land value (state and local governments).</p></li>
</ul>
<p>The <a href="http://www.firsthome.gov.au/">First Home Owner Grant</a> and the use of superannuation savings to buy housing were seldom mentioned. The same is true of the Reserve Bank and the role of the Australian Prudential Regulatory Authority in regulating housing lending.</p>
<p>The macroeconomic implications of fiscal issues were largely not included in the housing debate. The irony is that both major parties support market distortions – the Coalition government somewhat moreso than the Labor opposition. </p>
<p>This is where politics enters the picture. It is <a href="https://theconversation.com/the-way-australia-taxes-housing-is-manifestly-unfair-58421">recognised that</a>:</p>
<blockquote>
<p>70% of voters own their houses … Housing accounts for more than 60% of the value of total assets held by Australians.</p>
</blockquote>
<p>Home owners have a vested interest in stable, if not increasing, housing prices. As a result, it <a href="https://theconversation.com/housing-policy-is-captive-to-property-politics-so-dont-expect-%20politicians-to-tackle-affordability-55384">was observed</a>:</p>
<blockquote>
<p>The default position for politicians is to sound concerned about housing affordability, but to do nothing.</p>
</blockquote>
<p>Reading the articles caused me to think the debate should be framed somewhat differently and focused on market distortions. These are a negative when policies:</p>
<ul>
<li><p>give rise to price distortions;</p></li>
<li><p>divert capital from more productive investments to less productive ones;</p></li>
<li><p>divert consumption from other goods and services and associated jobs as a result of inflated housing prices and mortgage payments;</p></li>
<li><p>create risks: household debt and exposure to interest rate rises, bank mortgage lending, the housing market, the national economy;</p></li>
<li><p>raise transaction costs;</p></li>
<li><p>reduce labour market efficiency by discouraging labour mobility; and</p></li>
<li><p>exacerbate inequality.</p></li>
</ul>
<p>Market distortions, when transparent, are positive if they serve social ends like affordable housing and reduced inequality.</p>
<p>With some variation in interpretation, Conversation authors agree that negative market distortions arise from the fiscal policies listed earlier. Negative gearing and capital gains tax are “<a href="https://theconversation.com/the-apra-bandaid-for-the-housing-market-is-wearing-off-75539">perverse incentives</a> in the tax system”. Together, they have “simply added <a href="https://theconversation.com/the-latest-ideas-to-use-super-to-buy-homes-are-still-bad-ideas-74841">fuel to the fire</a>” of increasing housing prices.</p>
<blockquote>
<p>Negative gearing is … a <a href="https://theconversation.com/a-first-step-on-negative-gearing-but-not-much-more-54738">subsidy for buyers</a> … The problem is one of too many buyers willing to pay high prices, and negative gearing is designed to create more buyers willing to pay more.</p>
<p>So negative gearing encourages people to invest in property, and it particularly encourages them to invest by borrowing most of the price of the house … This is a very odd kind of housing and investment policy, seemingly designed to encourage people to over-extend and expose themselves to big risks if property prices were to fall.</p>
</blockquote>
<p>Capital gains tax is “<a href="https://theconversation.com/explainer-why-negative-gearing-is-bad-policy-21882">diverting capital</a> from other productive investments in the expectation of tax-free capital gains”.</p>
<p>Lopsided lending for private housing has diverted finance <a href="https://theconversation.com/australias-soaring-housing-costs-signal-need-for-a-new-economic-consensus-56806">away from business investment</a>.</p>
<p>The articles also identify distortions to the economy, household debt and Australia’s budget deficit. An example is:</p>
<blockquote>
<p>… the <a href="https://theconversation.com/the-apra-bandaid-for-the-housing-market-is-wearing-off-75539">unusually generous treatment</a> which the Australian tax system gives to the costs of and returns from debt-funded property investment.</p>
</blockquote>
<p>And, referring to a possible housing bubble:</p>
<blockquote>
<p>… double-digit increases in house prices, combined with unprecedentedly high household debt (more than 120% of GDP, the third highest in the world) and household debt servicing ratios (also the the third highest in the world), <a href="https://theconversation.com/what-economics-has-to-say-about-housing-bubbles-74925">make for a precarious situation</a>.</p>
<p>… the CGT exemption cost the budget A$46 billion in 2015-16. Removing the exemption altogether would wipe out the budget deficit <a href="https://theconversation.com/why-politicians-hate-the-idea-of-taxing-the-homes-of-the-rich-52973">in one swoop</a>.</p>
</blockquote>
<p>Another author <a href="https://theconversation.com/moving-on-from-home-ownership-for-generation-rent-71628">notes that</a> by:</p>
<blockquote>
<p>… making homes default savings accounts essential to our long-term welfare security … we have come to depend on them for much more than housing … A welfare system that relies on home ownership in a globalised era is … critically vulnerable. </p>
</blockquote>
<p>The articles on market distortions lead to firm conclusions. Fiscal policies that benefit home owners significantly distort the economy, inflate housing prices, and create risks that permeate from households to the national economy.</p>
<h2>Supply-side blaming</h2>
<p>It must be noted from the start that:</p>
<blockquote>
<p><a href="https://theconversation.com/why-housing-supply-shouldnt-be-the-only-policy-tool-%20politicians-cling-to-72586">New supply is a small fraction</a> of the total stock of dwellings (about 2% in Australia). Prices are set by the total housing market …</p>
</blockquote>
<p>Discussion of housing prices that singles out supply-side issues is thus poorly grounded. This is contrary to Treasurer Scott Morrison’s <a href="http://sjm.ministers.treasury.gov.au/transcript/006-2017/">view</a>:</p>
<blockquote>
<p>The issue here is fundamentally about supply. </p>
</blockquote>
<p>He <a href="https://theconversation.com/morrison-targets-state-planning-regulations-as-problem-for-housing-affordability-67524">seems to believe</a> that:</p>
<blockquote>
<p>… the most important factor behind rising prices has been the long-running impediments to the supply side of the market.</p>
</blockquote>
<p>Morrison seeks to push states to remove residential land use planning regulations that are supposedly unnecessary and impeding the supply of housing.</p>
<p>Several articles observed that it is easy for the federal government to express dire concern about affordability and to blame state and local governments for planning and building regulations slowing the supply of land and housing. State governments sometimes repeat this mantra, blaming local governments.</p>
<p>It was observed that home owners are susceptible to scare campaigns by property sector bodies about the claimed impact of possible fiscal reforms It was <a href="https://theconversation.com/how-the-property-council-is-shaping-the-debate-around-negative-gearing-taxes-61006">also observed</a> that Morrison was the Australian Property Council’s national policy and research manager from 1989 to 1995, and is well versed in blame shifting.</p>
<p>Are the supply-side problems dire? It appears not. In Sydney and Melbourne:</p>
<blockquote>
<p>… approvals are running at about double the <a href="https://theconversation.com/why-housing-supply-shouldnt-be-the-only-policy-tool-politicians-cling-to-72586">actual dwelling construction levels</a>, so “fixing” the planning systems is unlikely to have much impact on dwelling supply levels.</p>
<p>Growth in the national housing stock has <a href="https://theconversation.com/can-the-private-rental-sector-provide-a-secure-affordable-%20housing-solution-63880">kept pace with population growth</a> for almost a decade.</p>
</blockquote>
<p>Developers release land to the market at a rate that sustains prices.</p>
<blockquote>
<p>Developers … simply won’t allow supply to <a href="https://theconversation.com/why-housing-supply-shouldnt-be-the-only-policy-tool-politicians-cling-to-72586">get ahead of demand</a> in a way that would put significant downward pressure on prices. Dwelling approvals in Sydney and Melbourne are running way ahead of building starts, but housing projects are released in stages to avoid swamping the market.</p>
</blockquote>
<p>As a result:</p>
<blockquote>
<p>Record construction rates <a href="https://theconversation.com/if-youre-serious-about-affordable-sydney-housing-premier-%20heres-a-must-do-list-71791">have co-existed</a> with unprecedented and ongoing property price hikes.</p>
</blockquote>
<p>The issue is less the scarcity of land than speculative acquisition of land. The developers benefit from unearned increases in value arising from zoning changes, and then from a managed release of land to the market. </p>
<p>For these reasons, some articles proposed taxes should accompany rezoning. A vacant land tax was also mentioned.</p>
<p>Many articles also worried about where land is being released. The need for planning and the importance of location have long <a href="https://theconversation.com/smart-cities-wouldnt-let-housing-costs-drive-the-worse-off-into-deeper-disadvantage-61213">been evident</a>:</p>
<blockquote>
<p>In his 1972 election campaign, Gough Whitlam loudly proclaimed that in modern Australia an individual’s health, wellbeing and life chances were shaped more by where they lived than the job they held, their religion, race or ethnicity.</p>
</blockquote>
<h2>Promoting inequality</h2>
<p>In effect, all home ownership in Australia is subsidised. It’s a form of social welfare biased in favour of the wealthy. For example:</p>
<blockquote>
<p>… Australian governments have effectively subsidised housing <a href="https://theconversation.com/explainer-the-financialisation-of-housing-and-what-can-be-done-about-it-73767">through taxation incentives</a> for home ownership.</p>
</blockquote>
<p>For instance, the exemption from capital gains tax:</p>
<blockquote>
<p>… results in the payment of income support to <a href="https://theconversation.com/lets-talk-about-the-family-home-and-its-exemption-from-the-%20pension-means-test-61736">those with substantial wealth</a> tied up in their principal residence.</p>
<p>… the current benefits of exempting the main residence from CGT <a href="https://theconversation.com/why-politicians-hate-the-idea-of-taxing-the-homes-of-the-rich-52973">flow mainly to high-income earners</a>, with more than 50% of the benefit flowing to the top 20% of households … [capital gains tax] is a perk for the rich.</p>
<p>… negative gearing is a tax deduction … the higher your marginal tax rate, the <a href="https://theconversation.com/a-first-step-on-negative-gearing-but-not-much-more-54738">more you get</a>. Someone on $200,000 will receive about half their loss back. Someone on $30,000 will only get about a fifth.</p>
<p>… most of the gains go to a small subset of investors with lots of properties and on very high incomes. The “mums and dads” <a href="https://theconversation.com/a-first-step-on-negative-gearing-but-not-much-more-54738">get a relative pittance</a>.</p>
</blockquote>
<p>In addition to fiscal measures:</p>
<blockquote>
<p>… the lack of well-located affordable housing is an economic productivity concern <a href="https://theconversation.com/if-youre-serious-about-affordable-sydney-housing-premier-heres-a-must-do-list-71791">as well as a social problem</a>.</p>
</blockquote>
<p>Intergenerational inequality in home ownership is not included here. While often mentioned, it is “<a href="https://theconversation.com/how-the-housing-boom-is-remaking-australias-social-class-structure-66976">framing the housing affordability question the wrong way</a>”. The divide is <a href="https://theconversation.com/how-the-housing-boom-is-remaking-australias-social-class-structure-66976">determined by class</a> and perpetuated by those with wealth in property and the potential for intergenerational wealth transfer <a href="https://theconversation.com/moving-on-from-home-ownership-for-generation-rent-7162">in the housing market</a>.</p>
<p>A specific insight concerns the geography of mortgage stress. Mortgage stress is more a result of household income than the price of the house. Rather than Sydney and Melbourne, where mortgages are highest:</p>
<blockquote>
<p>… mortgage stress is highest in <a href="https://theconversation.com/not-on-struggle-street-yet-but-mortgage-stress-risk-is-rising-64293">Tasmania and South Australia</a> … Households in regional areas are also facing more mortgage stress than their city counterparts.</p>
</blockquote>
<p>If attention turns from house prices to mortgage stress, the geography of housing angst <a href="https://theconversation.com/a-housing-affordability-crisis-in-regional-australia-yes-and-heres-why-71808">turns to regional Australia</a> and to “<a href="https://theconversation.com/not-on-struggle-street-yet-but-mortgage-stress-risk-is-rising-64293">employment and income statistics</a>”.</p>
<h2>Beware simplistic mantras</h2>
<p>It is hoped this article leads to some introspection regarding the causes of housing affordability problems. Australia has for too long persisted with the mantra of housing prices being caused by problems of supply. </p>
<p>This is not a political statement. It was Labor that established the National Housing Supply Council. The emphasis on supply is so very misleading. The focus should be on the functioning of the housing sector and on those unable to enter the housing market.</p>
<p>It is hoped as well that this article has caused some concern regarding the macroeconomic distortions and productivity costs associated with housing policies and, more to the point, policies that are not intended to affect housing. </p>
<p>The failure to resolve housing issues, besides being thoroughly unfair, is also a failure to improve the productivity of Australia’s economy.</p><img src="https://counter.theconversation.com/content/73751/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Tomlinson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Housing experts writing for The Conversation largely agree on the government policies that are causing negative distortions in the market and the wider economy. And supply is not the key concern.Richard Tomlinson, Professor of Urban Planning, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/745452017-03-19T19:27:08Z2017-03-19T19:27:08ZValue capture: a good idea to fund infrastructure but not easy in practice<p>Is “value capture” a wonderful untapped opportunity to fulfil all our infrastructure dreams? Or is it just a new way to sting the taxpayer? Our <a href="https://grattan.edu.au/">new report</a> casts a cold, hard gaze over value capture, and finds that it’s a good tax in theory, but will prove very hard to put into practice.</p>
<p>Value capture is the name given to a policy whereby governments capture some of the increased value of land that results from building a new piece of infrastructure. Typically, the money the government “captures” is used to help fund the project.</p>
<p>At first glance, value capture seems marvellously fair, because it applies only to those who benefit from the particular project. So the people of western Sydney do not help fund a new railway station on the North Shore. But look a little closer: it also means that affluent inner-city residents don’t help fund a better railway station in Melbourne’s outer northern suburbs.</p>
<p>Federal ministers from the prime minister down are enthusiastic about value capture and are pushing the states to embrace it. Only last week, Urban Infrastructure Minister <a href="http://minister.infrastructure.gov.au/pf/speeches/2017/pfs002_2017.aspx">Paul Fletcher reiterated</a> that the Commonwealth does not want to be “just an ATM” for the states. But if the federal ministers face up to some home truths, they may find value capture less to their liking.</p>
<h2>Value capture is a tax</h2>
<p>Home Truth No. 1 is that a value-capture scheme is a tax. That’s how it raises revenue. Politicians tend to shun the “T word”. They prefer to present value capture as an innovative financing mechanism. Sorry, it’s a tax.</p>
<p>Some advocates point to Hong Kong, where a private company builds and operates the rail lines, in return for cheap access to development rights around the new stations – a non-cash subsidy. Yes, integrating new infrastructure with rezoning and other planning changes is a great idea. But a similar model in Australia would have to be much smaller in scale. </p>
<p>That’s because in Hong Kong the government owns all the land. In addition, the city is dramatically denser than Australian cities: more than 7 million people live in a built-up area of around 285 square kilometres, compared with Sydney’s population of about 5 million in around 2,000 square kilometres. In a very dense city, good access to mass transit is highly valued.</p>
<p>Others in the value-capture camp point to tax increment financing (TIF) schemes. These have been <a href="http://infrastructureaustralia.gov.au/policy-publications/publications/files/Capturing_Value-Advice_on_making_value_capture_work_in_Australia-acc.pdf">used in the US with mixed success</a>.</p>
<p>TIF schemes don’t involve a new tax, or indeed a funding source of any kind. Instead, they are financing schemes that earmark an expected increase in future revenue from existing taxes, such as land taxes, which can be attributed to a new piece of infrastructure. This increase is then used to repay special-purpose bonds. </p>
<p>But TIF schemes are of little value in the Australian context, since Australian governments have strong credit ratings and can borrow at extremely low rates of interest – more cheaply than private sector financiers can. Not only this, but TIF schemes generally do not offload project risk. They may instead come with a hidden government guarantee.</p>
<h2>Family home would be captured</h2>
<p>Which brings us to Home Truth No. 2: to raise a reasonable amount, a value-capture tax would need to include the family home. Owner-occupied housing accounts for around 65% of total land values in Australia, and increases in its value are taxed very lightly (see the chart below).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/161042/original/image-20170316-20491-1fsjall.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>To minimise the distortions value capture could have on the economy, it should be charged on unimproved land value, as a flat proportion of the land-value uplift attributable to the new infrastructure, with no exemptions.</p>
<h2>A tricky question of who’s in and who’s out</h2>
<p>Home Truth No. 3 is that many taxpayers are likely to feel aggrieved. Property prices go up – and down – for many reasons.</p>
<p>Drawing a boundary around a new piece of infrastructure to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice. </p>
<p>Also, it won’t be easy for governments to convince people that their new tax bill still leaves them better off. Homeowners get the benefit of the new project on paper, but have to pay the tax bill in cash. Is this sounding like a political nightmare yet?</p>
<h2>A way to reduce the political heat</h2>
<p>There is, however, a way to implement value capture that could take a bit of the political heat out of individual decisions. Governments could pass general legislation that applies value capture to every transport infrastructure project with certain characteristics: </p>
<ul>
<li><p>an identifiable beneficiary catchment</p></li>
<li><p>a project that’s expected to makes an area significantly more accessible</p></li>
<li><p>the amount of revenue to be raised far outweighs the cost of administering the scheme. </p></li>
</ul>
<p>So, for example, value capture might apply to all urban passenger rail projects costing over A$50 million. The tax might then be levied on all properties within 800 metres (i.e. walking distance) of a new station. </p>
<p>Once such legislation is in place, each value-capture tax may be slightly less politically fraught. This approach will minimise the opportunities for rent-seeking or corruption that arise from designing bespoke schemes for every individual project.</p>
<h2>Broad-based land tax is better still</h2>
<p>A better answer still could be a broad-based land tax. Such a tax is highly efficient, because land is an immobile tax base (see the chart below). </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/161043/original/image-20170316-20523-5e9xex.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>While it would not zero in on the beneficiaries of new infrastructure, a land tax would capture the effects of all infrastructure, old and new, as these translated into land values, making it scrupulously fair. A broad-based land tax would also be simpler to administer than a value-capture tax. That’s because there would be no requirement to police the geographic boundary of the catchment area. </p>
<p>So a broad-based land tax has some distinct advantages over a value-capture tax. </p>
<p>Some will say our conclusions are pessimistic, that a little more creativity could devise a way to design value capture so it painlessly funds public infrastructure. To which we would say: there’s no magic pudding when it comes to public money – the only sources of funding for public infrastructure are user charges or a tax. Value capture may involve taxing beneficiaries more than the general taxpayer, but it’s not a bucket of free money.</p>
<p>Yes, if value capture is done the right way, as a tax that embraces the principles of equity, efficiency and simplicity, it could make a positive contribution to infrastructure funding in Australia. But the truth is, there is nothing easy about capturing value.</p>
<hr>
<p><em>Marion Terrill and Owain Emslie are the authors of the new Grattan Institute report, What price value capture?, available <a href="http://www.grattan.edu.au">here</a>.</em></p><img src="https://counter.theconversation.com/content/74545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.</span></em></p><p class="fine-print"><em><span>Marion Terrill and Owain Emslie do not work for, consult, own shares in or receive funding from any other company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond the academic appointment above.</span></em></p>Consider these home truths: value capture is a tax, it would need to apply to the family home and deciding which areas it covers would be politically contentious. A broad-based land tax is simpler.Marion Terrill, Transport Program Director, Grattan InstituteOwain Emslie, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.