Australia's Future Tax System

Final Report: Detailed Analysis

Chapter C: Land and resources taxes

C2. Land tax and conveyance stamp duty

Key points

Land has the potential to be an efficient tax base for the States capable of delivering significant and sustainable revenues. Land is an efficient tax base because it is immobile; unlike labour or capital, it cannot move to escape tax. This means that economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases. However, this efficiency is harmed if there are significant exemptions from land tax that encourage people to change how they use land.

Stamp duties on the transfer of commercial and residential land and buildings are a significant, though volatile, source of State tax revenue. Stamp duties are poor taxes. As a tax on transferring land, they discourage land from changing hands to its most valuable use. Stamp duties are also an inequitable way of taxing land and improvements, as the tax falls on those who need to move.

Existing land taxes are narrow, which make them less efficient and fair than they could be. Levying higher taxes on larger holdings discourages investment in land by institutional investors in rental housing. Since owner-occupied housing is exempt, land tax on residential investment properties is probably passed through to renters as higher rents.

Stamp duties on conveyances are inconsistent with the needs of a modern tax system. Land tax needs to be reformed. Broadening the base of land tax would provide a reliable and stable source of revenue to State governments. Land tax rates should be based on the value of a given property, so that the tax does not discriminate between different owners or uses of land.