Replacing stamp duty with a broad-based land tax is at the top of the New South Wales government’s list of recommendations for a new tax mix for Australians.
Changing taxes could encourage people to sell their homes, developers to build houses and make the state budget more manageable, according to the draft report on the NSW government’s review of federal financial relations.
The review lists 15 suggestions for the country’s taxes including the land tax switch, abolition of stamp duties and GST reform.
In 2018-19 the NSW government raised around $7 billion, or 24 per cent, of annual tax revenue from transfer duty, making it the state’s second-largest source of tax revenue.
According to the review, this was a very volatile source of income and it made it hard for the state government to manage its budget, forcing dependency on the federal government.
“At the height of the property market boom in 2017-18, New South Wales raised almost 28 per cent of taxation revenue from transfer duty (one third greater than a decade prior) before revenue dropped by 14 per cent the following year,” the review said.
The current tax system also puts the burden of paying for essential services and infrastructure onto people who buy and sell properties more often.
“There were 2.8 million properties in New South Wales in 2018-19, but less than 200,000 of their owners contributed to the funding of essential services via transfer duty,” the review said.
The review showed most people stayed in their homes for decades, and changing the taxes could encourage people to move more often while improving housing affordability.
“In contrast to transfer duty, a new land tax would not penalise transfers or capital investment, and by prompting faster redevelopment of land, may also boost investment and housing supply,” the review said.
Review panel chair David Thodey said the current tax system had led to learned financial dependency on the federal government and that was unhealthy and unsustainable.
“Without reform the states are going to find it very difficult to face an increasing funding for the essential services they provide, namely health, education and infrastructure,” Thodey said during a National Press Conference address.
“While the federation is definitely not broken, both the federation and tax system can be made to function more efficiently and, we think, more aligned.”
Information provided by the Urban Developer