While Australia’s states and territories are able to raise billions of dollars from property taxes each year, diverging stamp duties, tax rates, thresholds, and exemptions lead to reduced administrative and economic efficiencies, according to the Australian Housing and Urban Research Institute (AHURI).
AHURI’s research has identified a pragmatic and incremental framework for property tax reform. Entitled the “Pathways to state property tax reform,” the report is the first to be published from the ongoing AHURI Inquiry, “Pathways to housing tax reform”.
The report aims to break the political deadlock that has paralysed Australian housing tax policy and identify the reforms that balance political imperatives against technical policy objectives.
Key recommendations include:
- Developing consistent valuation methods for residential property and creating a national register of ownership. There should also be further integration and sharing of data among all levels of government.
- Creating a single 6% transfer duty, with a carefully designed and state-specific duty-free threshold that would be applied to all residential property transactions. This simplified duty system would shift the burden from owner-occupiers buying lower-value properties toward investors and those purchasing higher-value properties.
- Instituting the longer-term, incremental replacement of property-related transfer duties with a broad-based reoccurring property tax of between $47 and $130 per annum for a median value dwelling. This would be gradually increased to fund the abolition of transfer duties over a 10- to 20-year period.
- Ensuring that the federal government plays a key role via administrative support, incentive payments, and the elimination of any disincentives associated with introducing a state-level, broad-based property tax.
Richard Eccleston, professor of political science at the University of Tasmania (UTA), said a slight tax increase for some households would be offset by greater overall benefits.
“As with any base-broadening reform—especially if designed to be revenue neutral, as ours is—it is unavoidable that, over the longer term, some households will have to pay slightly more tax,” he said.
“Yet the pathway to reform proposed in this report is designed to ensure that tax increases are very modest and fall on wealthier households. This is a small price to pay for a fairer and more sustainable housing system.
It is essential that governments are transparent about this and promote the longer-term social and economic benefits of reform, including housing affordability dividends and the fact that all homebuyers, including first-home buyers, will benefit from lower prices in the future and those buying cheaper properties will pay reduced ongoing property taxes.”
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