STAMP DUTY IS WIDELY CONSIDERED INEFFICIENT AND INEQUITABLE, BUT ANY MOVE AWAY FROM THIS TAX NEEDS TO KEEP ALL OPTIONS ON THE TABLE.
In a recent article published in South Australia, commentator Jessica Irvine described stamp duty, on “a scale of one to evil, as the green vomit-spraying head spinner of the tax toolbox.”
When applied to property, it creates a road block for people wanting to upgrade, downsize or move for whatever reason that suits the homebuyer at the time. It means that many people stay in their current house rather than moving to more suitable premises, clogging up housing that could be more efficiently used by others. This in turn can lead to housing shortages.
One idea is to replace a narrow tax, such as stamp duty on property which only a few people pay, with a broader taxation regime where more people contribute but the cost per person is radically lower. Candidates for that broader tax include Land Tax and GST.
In theory all it takes is political will but it is actually more complicated than that.
The challenge in broadening the base for land tax is that it would mean that the current exemption for home owners would be removed. This could create problems for those that are asset rich and cash poor like many pensioners.
The option of increasing the GST percentage is attractive as it fits with the original premise that the GST would replace state based taxes. The calculations when the GST was first presented demonstrated that it was feasible at ten percent to remove the state taxes, but that was before exemptions for food and other items were introduced, decreasing revenue sharply.
The problem for Western Australia is that our share of the GST revenue is falling; Treasury states that Western Australia’s GST relativity is expected to fall to 25 percent by 2015-16.
If GST were used to facilitate the removal of Stamp Duty we would potentially need to increase the amount of GST required to achieve that in WA by a factor of four as 75 percent would go to the east coast.
With Paul Braddick from the ANZ forecasting that WA may have a shortage of 90,000 dwellings in WA by mid this decade, we should definitely keep all of the options on the tabled for future discussion. Hopefully we will identify an efficient taxation regime that removes barriers without the unintended consequences of increasing the flow of money across the border or creating financial hardship.
If it was easy we would have done it already!