Overcoming roadblocks to reform state property taxes

Australian states and territories raised over 40 billion dollars from taxes on property in 2014–15, but how and where such taxes are levied has become very complex. Across Australia, different stamp duties, land tax rates and thresholds are in place for different classes of owners depending on how the property is used. This leads to reduced administrative and economic efficiency. While making beneficial changes can be politically contentious, AHURI research has identified a pragmatic and incremental progression for state property tax reform that includes short-term and long term objectives.

The research, ‘Pathways to state property tax reform’, was undertaken for AHURI by researchers from the University of Tasmania and the University of New South Wales, and modelled a number of different property tax rates and threshold levels at which such taxes would be implemented.

It is essential that governments are transparent... 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

Lead author of the research, Professor Richard Eccleston from the University of Tasmania, said ‘Above all, reforms must be sufficiently flexible so individual state governments can adapt them to their particular policy objectives, with a simplified tax framework letting governments choose thresholds for land tax and transfer duty rates consistent with prevailing preferences and conditions. Ultimately reforms will be best achieved through an incremental model of short, medium and long term objectives.’

Key findings were that a nationally coordinated approach to registering and valuing residential property is required; in the medium-term a simplified transfer duty regime, with a generous tax-free threshold and a flat rate imposed on properties above the threshold, is the most efficient model; and that long-term, a broad-based recurrent property tax should replace transfer duties.

Under these reforms, the tax system could be more progressive (depending on the rate and threshold selected), and purchasers of lower value properties, which would include large numbers of first home buyers, will pay less duty than they do currently.

‘As with any base-broadening reform—especially if designed to be revenue neutral, as ours is—it is unavoidable that without compensation most households will have to pay slightly more tax in the short term.’ said Professor Eccleston.

‘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.’