A property levy to contribute to state budgets and help phase out stamp duty has been proposed by an Australian institute.
As part of the Grattan Institute’s Budget Repair series, the Property Taxes working paper suggests a property levy of $2 for every $1,000 of unimproved land value, or $1 for every $1,000 in capital-improved values.
The paper estimates the levy would raise $7 billion a year with an annual charge of $772 on the median-priced Sydney home, $560 on the median-priced Melbourne home and lower average rates for other cities and regions.
State budgets are under pressure with spending in health, education and other areas growing faster than GDP resulting in a looming funding gap according to Grattan Institute’s CEO John Daley.
State revenues are also threatened by the federal governments’s decision in last year’s budget to substantially reduce promised funding to states for hospitals and schools.
The paper argues that a broad-based property levy calculated from the council rates base would be the best revenue measure to fill that gap.
“While property taxes can be unpopular because they are highly visible and hard to avoid, they are also efficient and fair and don’t change incentives to work, save and invest,” Mr Daley said.
“Unlike capital, property is immobile – it cannot shift offshore to avoid taxes.
“Over the last 25 years, taxes on property and property transactions have been the only significant ‘growth taxes’ for states, with revenues keeping pace with the economy.”
The levy could also be used to fund the reduction and eventual abolition of stamp duty, which is among the most inefficient and inequitable state taxes, according to the working paper.
The Grattan Institute believes shifting from stamp duty to a property levy would provide more stable revenues for states and add up to $9 billion in annual GDP.