THERE IS A SIMPLE WAY WE CAN RAISE THE REVENUE LABOR NEEDS TO FUND PROGRESSIVE SOCIAL POLICY – LAND TAX.
Like GST, land tax is a difficult political sell. But while the GST is regressive, land tax – based on unimproved land value – is inherently progressive and ticks the box on Labor values.
It is adored by mainstream economists from the OECD to former treasury secretary Ken Henry, who highlighted the policy in his much-admired but little-implemented 2010 Tax Review.
Land tax is a natural replacement for the hated stamp duty on conveyancing, an archaic impost that has survived despite the fact nothing really needs to be stamped nowadays.
Unlike the 19th century stamp duty, land tax provides a stable income not subject to rapid swings in house prices and sale volumes.
As NSW Labor Leader Luke Foley pointed out in his 2015 Budget reply speech, over-reliance on stamp duty exposes the State’s finances to the market’s ebb and flow.
‘When the Sydney housing boom ends, as it will, and the surge of stamp duty dissipates, what will our state’s budgetary position look like then?’ he said.
That’s no small question when stamp duty accounts for around 10 percent of the NSW budget.
The $25 billion in funding cut by the Federal Government from NSW health and education budgets further exacerbates the State’s revenue position.
Then there is the Baird Government’s sale of numerous profitable state-owned corporations, most notably in the electricity industry, which delivered short-term boosts to Treasury coffers.
But, later, this will be outweighed by the permanent loss of annual dividends paid to government by those companies.
The case for land tax as an essential plank of Labor’s solution to the burgeoning revenue crisis is compelling.
Economists predict land tax would deliver a 1.3-2.5 percent surge of economic growth – an ongoing mini-boom that could partially offset the decline in mining, commodities and manufacturing.
This is largely because stamp duty drives inefficient investment in housing – costing an estimated 62 cents in economic activity for every dollar in revenue, compared to just 6 cents or less in the case of land tax.
Land tax smooths distortion in the housing market by encouraging investors towards more productive sectors.
So it’s clear: in the economic efficiency stakes, land tax is a runaway winner over stamp duty.
Even better, land tax is more equitable.
Its introduction would provide desperately needed relief for homebuyers, to whom stamp duty is another heavy burden at the exact time they can least afford to pay.
The stamp duty payable on a $1 million house in Sydney – close to the current median sale price – is $40,819.
That is a huge barrier to home ownership for the 30 percent of people who do not own a dwelling.
The abolition of stamp duty would immediately make housing more affordable – while the introduction of land tax would ease prices over the longer term, as the market factors in modest but ongoing payments.
Most modeling has land tax revenue neutral with stamp duty. The key difference is that land tax revenue is collected from a wider base and reflects the true value of household land assets.
Amid the swirling taxation debates, land tax emerges as a viable measure to tax real wealth.
Unlike many other assets and income sources, land ownership in Australia is very difficult to hide.
As Fairfax business commentator Michael Pascoe wrote last year:
‘The great thing about “land”, in its broadest definition, is that it can’t run away, turn itself into a double-Dutch-Irish sandwich, hide in the Caymans, or sink to the bottom of the harbour.’
Any land tax model introduced by Labor would likely include special consideration for pensioners, regional households and owners of low-value land.
And the rate of a Labor land tax would be progressive, biting hardest on truly high-value property.But that equitable model could remain forever on the drawing board if Labor decision-makers continue to avoid the pressing need for property tax reform.
If a Liberal government acts first on the issue, the result may look very different.
The 2012 Lambert Review of NSW Finances, under the O’Farrell Government, also backed land tax to replace stamp duty.
No doubt Liberal policy wonks will observe with close interest the land tax debate scheduled for Labor’s State Annual Conference this month.
One of the key activists behind that debate is Springwood Branch member Luke Whitington, Deputy Chair of Labor’s NSW Economic Policy Committee.
Luke reported a ‘very positive’ response from the 50 Branches and Party Units where he presented the case for land tax.
‘There is widespread support among ALP members to start this conversation. There is also a level of concern about the politics,’ said Luke.
Translated: the policy discussion is infused with fear of a conservative scare campaign ripping into ‘Labor’s big new tax on the family home’.
The fear is well-founded but should it be decisive? At a time when many supporters say they don’t know what Labor stands for, the Party must find the long-haul fortitude to start and win arguments for economically- and socially-sensible policies.
It is possible, just ask John Howard. The truth is, he did not lie about the GST in 1998. He campaigned and won the election.
But an even better example, closer to home, is the current Labor Government in the Australia Capital Territory.
On 5 June 2012, ACT Treasurer Andrew Barr delivered a groundbreaking budget that included several tax reforms recommended by the Henry Tax Review.
On that day, in a revenue-neutral package, Labor announced the very gradual abolition of stamp duty in tandem with a land tax to be phased in over 20 years.
Admittedly, special factors in the ACT – supportive media and the ability of the Territory government to wrap land tax into household rates – mitigated the inevitable Liberal scare campaign.
But 2015 saw South Australian Labor Treasurer Tom Koutsantonis take a solid step in the same direction, with commercial stamp duty to be abolished by 2018.
Shadow Federal Treasurer Chris Bowen told the 2015 AFR Tax Reform Summit:
‘The Labor States have led the way, not with talk but with concrete action … Broader-based land taxes are not universally popular, but land tax is about the most efficient tax in Australia and stamp duty is particularly inefficient. Both Andrew and Tom are to be congratulated for having the courage to pursue controversial but worthwhile tax reform.’
In NSW, land tax advocates such as Luke Whitington and Leichhardt Councillor Frank Breen, from the Labor Progressive Economic Policy Network, are realistic. They do not expect the Party’s 2015 Annual Conference to adopt land tax as binding policy.
What we want now is to establish land tax as a legitimate policy option for NSW Labor. It needs to be on the table when we talk about tax,’ said Luke.
Because when we talk about tax we talk about values.
Tim Ayres, NSW Secretary AMWU, said: ‘We’ve got to have land tax on the agenda and we’ve got to start the debate. Alternatively, the only revenue model that will be out there will be a regressive GST which will unfairly impact the sort of people who I represent’.
Fairfax economics writer Jessica Irvine nailed it in April 2015:
‘Sensible tax debates are, at heart, debates about what sort of society we want to be. Should we be a society in which wealth is passed from generation to generation through property, a landed aristocracy 2.0? Or should governments begin to tax wealth where they find it: at home.’