Mr Turnbull threw another curveball last week when he suggested the states be given the capacity to set their own income tax rates to fund hospitals and schools. When premiers balked at the proposal, Mr Turnbull revealed he would insist on changes to state taxes as a prerequisite to share income tax.

Abolishing stamp duties

Sources said Treasury analysed abolishing stamp duties at the same time as it examined a GST increase in exchange for lower personal tax rates. Replacing stamp duties with land taxes is widely regarded by economists as the best way to improve the tax system.

"In terms of tax reform, this is a big fat fish in a big fat barrell waiting to be shot," Deloitte Access Economics' Chris Richardson said.

Such a switch wouldn't raise any more tax revenue but would leave the economy better off. That is because stamp duties are a large drag on the economy, while land taxes benefit because they increase the tax base to include foreign landowners.

For every $1 of stamp duty there is a 72¢ drag on the economy, whereas land taxes provide a 10¢ boost, according to the Re:think discussion paper.

"Stamp duties on conveyances add to the costs of buying and selling property and can discourage businesses from undertaking productivity-enhancing purchases of existing land and capital," the paper said.

"The outcome can be retention of land for relatively unproductive purposes."


High stamp duties deter people from relocating for work or retirees selling up.

"If there is any low-hanging fruit in tax reform in Australia, it lies here rather than the GST," Mr Richardson said.

"I'm not saying you shouldn't do the GST but bang for buck this is a stand-out option.

"You're massively broadening a base and lowering a rate by shifting from stamp duties to land taxes."

Stamp duties account for as much as a quarter of revenue for some states. The Henry tax review said they had no place in a modern tax system.

Land an efficient tax base

But broad-based land taxes had the potential to deliver "significant and sustainable revenues," the review said.

"Land is an efficient tax base because it is immobile; unlike labour or capital, it cannot move to escape tax.


"This means that economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases. States already have land taxes but exemptions mean the systems are less efficient than they should be."

The ACT Labor government is phasing out stamp duty over two decades and replacing the levy on real estate sales with a property tax.

Insurance duty will also be abolished in the Territory by July 1, 2016.

The South Australian government is abolishing stamp duty on commercial property transactions by 2018.

Stamp duties are a major source of revenue for the NSW state government. The property boom provided $1.2 billion more in stamp duties than forecast in 2014-15.

In a recent report, the think tank the McKell Institute described how stamp duties are inequitable because families forced to move for work are punished. First home buyers are also disadvantaged because stamp duties cannot be included in a mortgage.

"For example, a first home buyer in Sydney seeking to purchase a median price home for $1,032,000 would face a stamp duty bill of $42,250," the report said. "Assuming a 10 per cent deposit of $103,200 and an average of $10,000 in legal fees and insurance fees, stamp duty would make up a quarter of up-front costs."