The announcement by the NSW Government that it will abolish stamp duty and replace it with an annual property tax proves that bold tax reform is possible beyond merely giving big socially destructive income-tax cuts to the wealthy.
The tax system is a redistributive vehicle. The vehicle can, on one hand, transfer vast amounts of money from the common wealth to a megawealthy elite or, on the other hand, transfer money from the wealthy to the commons.
After three or four decades of the former, the pandemic has now turned so much of the public mind of the commons from apathy to engagement that the trend is reversing. This week’s stamp-duty change looks like a first step.
Most of the commentary has concentrated on the abolition of stamp duty, which has been seen as a denier of young people’s aspirations to home ownership and a break upon people moving up or down to accommodation more appropriate to their circumstances, instead staying put, extending and renovating if their existing dwelling was too small or rattling around if too big – an inefficient allocation of resources.
Those arguments should sway the day.
Of more importance, though, is the imposition of a property tax to be levied every year on newly bought properties (whether existing or new).
It is a gotcha moment, such as we have not seen since the GST in 2000 or capital-gain and fringe-benefits taxes in the 1980s. Buy a diamond necklace, pay the GST. Live in a swank house, pay the property tax. We now have a second unavoidable tax upon high-wealth people.
Other state and territory governments should follow. Instead of relying on stamp duty, the harvest of which is dependent upon on the erratic ebb and flow of real-estate turnover, the property tax is a permanent and more secure source of public finance.
The ACT, of course, began 10 years ago a 20-year process of moving from stamp duty towards higher rates and land tax. But 10 years in we are about 15 years into the land tax and rates rise and only five years in for stamp duty reduction.
The NSW plan is far better.
But Australia must build on this political momentum do make some obvious tax reforms which have been identified by numerous independent inquiries and reports from respected think tanks.
Half a century ago, Queensland stupidly removed death duties in the misguided view that the population growth caused by flocks of retirees moving to Queensland would bolster the economy, Instead, Queensland had to look after their health at great expense.
Other states stupidly followed.
NSW leading in moving from one-off stamp duty to an annually levied property tax should be followed with the abolition of payroll tax, replacing the lost revenue with death and gift duties.
When you look at all the hypocritical hard-hat and fluoro-vest mantra politicians spout about jobs, jobs, jobs, you have to ask how does this sit with the $25b a year the states and territories raise on those very jobs in payroll taxes – a huge disincentive for employers to take on any more taxed employees.
Death taxes, on the other hand, are deliciously unavoidable if combined with gift taxes. Better to tax death than jobs.
Let’s go further. We impose taxes on a socially and economically destructive conduct like smoking. We should widen it to belching carbon in to the atmosphere. We should widen it to include sugar in foods and we should impose a meaningfully high deposit scheme, say $1, on all drink containers. The kids would scoop them up before they had a chance to reach the ocean.
This reduces that harmful activity and reduces government outlays that would have otherwise have to be spent to ameliorate the effects of the harmful activity.
Bring on a carbon tax. But the Constitution says only the Federal Parliament can do it. And it should because, if we do not impose a carbon tax our trading partners will impose it for us when we try to export to them. They will impose a carbon tariff which would be well within WTO rules. And that tariff would go to the foreign country, whereas a locally imposed carbon tax would go into our own coffers.
It is sickening that billionaires have made so much money playing the stockmarket in the pandemic with money they could afford to lose.
The billionaires, of course, are not self-made. All have relied upon public assets – whether roads, police, the education and Medicare-supported health of their workforces – to make their money and without which they would have none.
It is even more sickening that if they had lost on their investments it would not have made a jot difference to their lives. How many billions can they spend? How useless are those billions in the face of terminal illness?
And even more sickening is that they are in line for billions more still in tax cuts under this Federal Government which will only result in calls later on for cuts to government services to balance the budget.
This is no longer a fight between right and left. The contest for the common wealth is a contest between, on one hand, a wealthy elite and the people duped by their propaganda into supporting them and, on the other hand, the rest.
We should end the prohibitive marginal tax rates (of up to 90 per cent) that discourage mainly women from entering the workforce by providing free childcare.
We should replace the fuel tax with a road-user charge based on where, when and how far you have travelled. The technology is there.
We should have a broader GST, particularly health and education. The list goes on.
The pandemic has shown the redistributive tax vehicle can temporarily reverse the move from the commons to the wealthy and replace it with fairness and efficiency. It has obviously made the Coalition NSW think that way. It should prompt the other eight governments to act in the same way.
This article first appeared in The Canberra Times and other Australian media on 21 November 2020.