Replacing stamp duty with land tax would be a financial boon for the states. Credit:Virginia Star Very briefly, stamp duty does economic harm by discouraging mobility and the most efficient use of land. It's highly inequitable as those who move homes – the transferees, the downsizers, the upgraders – and investors pay much more tax than those who stay put. Land tax, on the other hand, is about as good as a tax gets – it's unavoidable (land doesn't move easily to Panama), transparent, cheap to collect, doesn't negatively influence behaviour and is inherently progressive as the rich tend to own more-expensive dirt and more of it. Remove stamp duty and the effect should be to stimulate more construction as land is used more efficiently and allow greater mobility, both geographically and in housing size. So what's not to like? From the politicians' point of view, it's the visible pain of annual (or preferably quarterly) land tax. While we collectively would be better off replacing stamp duty with land tax, many individuals would see the impact of a "Big New Tax" only on themselves and the sacrilege of "taxing the family home". Cue the shock jocks with the stories of asset-rich but income-poor pensioners copping simply unpayable land tax bills. While the KPMG report stresses the positive impact of reform, it also includes an estimate of the tax rate all NSW owners would need to pay to replace stamp duty: 1.3 per cent of the unimproved value of the land. Sticking with the NSW example, the Valuer General thinks the median land value in Premier Mike Baird's Manly is $1.26 million, and the median block in Treasurer Gladys Berejiklian's Willoughby is $1.32 million. So to do the right thing by NSW, Mike and Gladys would have to tell their median home-owning electors they want them to pay $16,380 and $17,160 respectively a year in land tax – $315 and $330 a week. In Opposition Leader Luke Foley's Auburn, the median land value is $567,000 – so $7371 a year, $142 a week. For all three of them, that's a very hard sell. It doesn't matter that the KPMG model is revenue neutral, that we collectively are already paying that much – individuals tend to lump the stamp duty slug into the cost of buying a home and don't work out the average cost over the years. And those who don't move are generally very happy to effectively freeload on the rest of the community.

A land tax would be a tough sell for the states' leaders. Credit:Alex Ellinghausen What such a visible and regular tax also would do is focus attention on what state government services cost. Visible taxation is preferred by economists, but politicians don't mind the less visible kind for obvious reasons. Despite the political danger, the Australian Capital Territory government is travelling down the replacement path, phasing it in over 20 years to spread the pain. The South Australian government had a hard look at the issue and is removing stamp duty on commercial land, but squibbed on owner-occupiers. It can be done but in the present environment, any one set of politicians would like some other set to take that pain for them. How to tax the properties of pensioners would no doubt prompt passionate debate. Credit:Michelle Mossop That's why the standard response from state pollies is that any discussion of replacing stamp duty with a broad land tax would have to be part of some broader reform – safe in the knowledge that the tax reform table has been cleared and splintered.

There are undeniable challenges and difficulties in implementing the switch. In the present climate, it's hard to imagine it will be possible without a degree of bipartisan agreement. The pollies all know they should do it, but aren't game to be seen to stick their hand up for it first. For the federal government, putting pressure on the states to fix their own revenue base has gone from implicit to explicit, much to the states' displeasure. The pensioner with no means of paying would have to be accommodated – probably by allowing the tax to accumulate and come out of the eventual estate. Which would raise allegations of it being a de facto death duty. (Not that there's necessarily anything wrong with that). The change would have to be phased in to accommodate those who have just paid a ransom in stamp duty, or stamp duty paid would be credited against the new tax. Unit dwellers, dividing the value of their land between them, would obviously pay less, though there could be an argument for all owners to pay a minimum amount. There are plenty of such bedevilling details to work through . There are several potential ways of doing that. And it's not just the archetypal pensioner who would need to be mollified – The Australian Financial Review's chief political correspondent, Phillip Coorey, has shown the middle class is as prone to a big whinge as anyone. So beyond the new NSWBC/NCOSS study there is work to be done on dealing with those challenges, on explaining the benefits, on working out the best of several options and the extent of the tax. And then there is another layer to consider about what value capture is inherent in land tax and whether it could be taken further than the "revenue neutral" starting proposition.

But starting from a position of principle, of what would be best for the nation, would be a fine, if novel, thing. Disclosure: I was hired, as a known advocate of a broad land tax, to MC the launch of the NSWBC/NCOSS study.