Experts urge sweeping tax overhaul to scrap stamp duty for land tax
A sweeping reform involving Australia’s “most damaging” tax being abolished could unlock homeownership for thousands of Australians, experts have claimed.
Australians locked out of the housing market and those looking to downsize would be the biggest winners under a sweeping tax reform.
During a Senate Select Committee on Productivity in Australia, aimed at finding solutions to Australia’s housing crisis, experts pushed for the removal of unnecessary taxation.
Grattan Institute senior associate Matthew Bowes says axing stamp duty in favour of a broader land tax would not only be financially fairer, it would inject around $19bn into the economy a year.
“All taxes depress economic activity to some extent but some do so more than others. Stamp duty is by far the most damaging of all these taxes.
Mr Bowes says this would benefit both younger couples trying to get into the housing market or those looking to downsize would be the major benefactors of these changing taxes.
But he acknowledges that it would cost the state’s revenue in the short-term, as taxes on households are spread over a longer period of time.
“The fiscal gap is a really big problem for states when considering this reform. You are moving from a tax that you get upfront to one that is paid over the life of the property, which means you are deferring a large chunk of revenue,” he said.
“There are also secondary implications for things like the GST distribution which has weighed against states’ decisions in that regard.”
Currently the federal government collects all GST revenue, before it is distributed to the states and territory government based on horizontal fiscal equalisation.
This policy aims to keep government services and infrastructure broadly similar, with richer states and territories helping to fund poorer states.
If state governments revenue were to increase, they would get less GST.
Productivity challenge leading to affordability issues
Adding to the pressures for the housing sector was a dire lack of supply, which has been underdeveloped for decades.
To help address the current housing shortage the Australian government announced a housing accord target.
To meet the National Housing Accord target of 1.2 million new homes by 2029, Australia needs to build about 20,000 new homes per month.
The Australian Bureau of Statistics show dwelling approvals overall jumped 29.7 per cent in February to 19,022.
This was largely led by apartments and townhouses.
In original terms, the ABS states apartment approvals soared 191.2 per cent to 5398 dwellings.
They are now up 29.8 per cent higher compared to this time last year.
Townhouse approvals also rose in February, up 73.8 per cent to 2981 dwellings, after a 38.7 per cent fall in January.
Despite the gains in approvals in the latest data, Australia was still only approved 196,000 new homes in the last 12-months – well short of the 240,000 a year required.
During their opening remarks at the Senate inquiry the Housing Industry Association noted construction productivity has dramatically fallen over the last 10 years, adding to the price of housing.
HIA managing director Jocelyn Martin said the regulatory burden is the single most significant drag on housing productivity.
“Residential construction is subject to multiple and overlapping layers of regulation at local, state and federal levels – including planning and zoning, environmental approvals, and frequent and complex changes to the National Construction Code,” she said.
“Each layer adds cost, delay, uncertainty and risk – diverting resources away from actual home building and constraining the industry’s ability to innovate and scale.”
Meanwhile, separate statistics from the Productivity Commission state regulation adds between $135,000 to $320,000 per house built.
For apartments, it was between $40,000 to $175,000 per unit.
These figures did not include any benefit that regulation could be adding to the system.
Ms Martin said lowering regulations or improving productivity could not come at the cost of standards or by compromising safety.
“It is about designing smarter regulatory systems that achieve public policy objectives while enabling the industry to deliver homes efficiently, and at scale,” she said.
“Australia’s population growth outlook is strong and sustained, yet our settlement patterns remain highly concentrated in a small number of major metropolitan areas.”
“This concentration intensifies pressure on housing markets, infrastructure, and labour supply – while amplifying the very productivity challenges this inquiry is examining.”