Which would you prefer: stamp duty or a property tax?

Public policy think-tank the Grattan Institute says dumping stamp duty in favour of a “more equitable” property levy could mean an extra $7 billion a year for state governments.

But what would that mean for you?

In the second of the “Budget Repair” papers, Property Taxes, the institute recommends a broad based property tax, to be paid annually. This would eventually raise enough money to replace stamp duties, which raised $16 billion for the states in the 2013/14 financial year.

From a states’ perspective, stamp duty is an incredibly inefficient, unreliable tax, which is subject to property market cycles.

Instead of this, the Grattan Institute proposes an annual levy of $2 for every $1000 of unimproved land value for homeowners. This would equate to an annual charge of $772 on the average Sydney home, and $560 on the median-priced Melbourne home, with lower average rates in other cities and regions.

The property levy would be means tested: those living on low incomes and with no wealth would pay nothing.

Meanwhile, low-income retirees with high value houses could defer paying the levy until their house is sold.

John Daley, Grattan Institute chief executive, told Fairfax, “Stamp duties are among the most inefficient and inequitable taxes available to the states, and their revenues are inherently volatile”.

“They deter people from buying and selling property, and therefore can prevent them moving closer to jobs or upsizing and downsizing their homes as their needs change,” he added.

Dr Daley acknowledges that any new tax is a hard sell. “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”.

Shifting from stamp duty to a property levy would provide more stable revenues for states and add up to $9 billion in annual GDP, the paper says.

The idea has been put forward as a way for states to better manage their budgets and reduce their reliance on Commonwealth funding. The next Grattan Institute paper will look at reforms to superannuation tax concessions.

What do you think about this idea? How would it affect your situation?