SOURCE: Australian Financial Review WRITTEN BY: Fleur Anderson
Australia’s most efficient tax is not the GST but a broad-based tax on landowners regardless of whether it a suburban block or a sprawling pastoral estate, according to Treasury economists.
An analysis of five major Australian taxes by eight economists from Treasury’s Macroeconomic group and Treasurer Joe Hockey’s tax reform taskforce has given top marks to a broad-based land tax, so far only existing in parts of Sydney and the ACT, as the most efficient tax to raise revenue without negative impacts on the broader economy.
The working paper found the burden of company income tax mainly fell on workers through lower productivity and wages, and stamp duty on conveyancing was also passed on to workers.
A simplified personal income tax system and the GST were more efficient than company tax and stamp duties but still saps workers’ purchasing power of their wages after paying tax.
Whereas a “hypothetical” broad-based land tax – championed by the Henry tax review and now in use throughout Denmark, Estonia, Russia, Hong Kong, Singapore and Taiwan – would be a winner for Australian households because of the extent of foreign landowners in Australia who would be forced to pay tax.
“Since the revenue collected from foreign and domestic land owners is only redistributed to the domestic household, an increase in land tax results in a net transfer to the domestic household,” the working paper said.
“The domestic household will receive a net windfall gain from the lump-sum transfer that exceeds its tax expense.”
Treasury estimated 10 per cent of income from land currently goes to foreign owners and a broad-based land tax on all land, regardless of the value of the buildings on it or whether it was a family home or a foreign-owned commercial estate, would generate a windfall to domestic household of 10 cents for every extra dollar of tax revenue collected.
And in even better news for households, Treasury economists predicted households could use the extra cash to go to the shops or on holidays.
“This increase in income is expected to result in both increased consumption and increased leisure,” the working paper said.
A previous analysis of land taxes in 2011 as part of the NSW Financial Audit found current land taxes – which are similar to council rates and in NSW does not apply to family homes – was not as economically efficient as a mythical broad-based land tax because it had too many exemptions such as the family homes, farms and including tax-free thresholds.
Likewise the real-life GST, compared to the purity of a hypothetical goods and services tax, has been criticised for its many exemptions such as health, education and fresh food which makes the collection of the tax more inefficient.
The South Australian government is also canvassing a state land tax as part of its discussion paper released in February and has called for discussion about one tax reform idea which would abolish stamp duty on property transactions and replace it with a broad-based property tax of around $1,200 per annum for a median valued home of $410,000.
The Henry taxation review in 2010 also recommendated a broad-based land value tax which did not include buildings or be triggered by property transactions because both of these can distort the use of the land and can by inequitable.
It also urged against using lower rates or tax-free thresholds to address social inequity, which is better targeted through the personal tax and transfer system.
The South Australian discussion paper makes no recommendations but one tax reform idea put forward is to abolish stamp duty on property transactions (conveyance duty) and replace it with a broad-based property tax of around $1,200 per annum for a median valued home of $410,000.
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