Surely, if given the option, a large share of buyers would prefer to pay an annual land tax of, say about $3000 to $8000 for the aforementioned property values, based on their unimproved land value excluding the physical home on the property.

It's perhaps not a policy pipe dream. Labor's potential federal treasurer-in-waiting Chris Bowen has said he wants to revive Commonwealth-state economic reform and has signalled incentive payments to states are an option.

Ambitious NSW Treasurer Dominic Perrottet, also from western Sydney, has said he finds Bowen personable and he aspires to one day dump stamp duty in favour of a broad-based land tax.

But under the current perverse GST system, states would be penalised by lower GST payments from the Commonwealth if they pursued such an ambitious reform.

600,000 bedrooms

The new council of state treasurers could help grease the wheels for reform.

Investment properties and business premises are already liable for land tax, but the primary home is exempt. Stamp duties are universally recognised as evil by economists.


Because they significantly increase the financial cost of moving, the transaction tax locks potential downsizer Baby Boomers, the elderly and other owners into homes that are too big or the wrong fit, instead of selling their large homes to younger growing families who need the space.

A study prepared for the NSW Treasury in 2016 by consultancy Applied Economics noted that replacing stamp duty with a broad-based land tax could release a significant amount of under-utilised housing.

Sydney has 600,000 bedrooms not being used according to an analysis by EY. That equates to 190,000 unused dwellings.

Stamp duty means people are forced to drive and transit further to work, adding to congestion, pollution and robbing people of spare time for recreation and family. Worse still, high stamp duty may deter workers switching jobs to a faraway location due to the transaction cost of leaving their existing home and buying a new house.

Worker immobility is bad for the economy.

In Queensland, where stamp duty rates are considerably lower, people move around much more and there are more property sales as a share of the housing stock.

NSW Treasurer Dominic Perrottet has spoken in favour of wanting to axe stamp duty. AAPIMAGE


It could be because Queensland is geographically larger or the Baby Boomers love moving to the warmth for retirement, but there's every chance that people-mobility is due to lower stamp duty costs.

A $1 million home in Brisbane faces a stamp duty of $30,850 – about $10,000 to $15,000 less than Sydney and Melbourne.

Former Treasury secretary Ken Henry's 2010 Australia's Future Tax System Review found conveyancing stamp duties were one of the most economically damaging taxes – much more than worker income tax, GST, land tax and rates.

"Stamp duties on the transfer of commercial and residential land and buildings are a significant, though volatile, source of state tax revenue," the review notes.

Shadow treasurer Chris Bowen has put Commonwealth-state economic reforms on the agenda. Alex Ellinghausen

"Stamp duties are poor taxes. As a tax on transferring land, they discourage land from changing hands to its most valuable use. Stamp duties are also an inequitable way of taxing land and improvements, as the tax falls on those who need to move."

"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."


While nearly all economists agree switching from stamp duties to land tax makes sense, politically it has been considered almost impossible. The problem has always been the difficult transition.

The option to choose

Not many politicians want to be accused of squeezing asset rich, income poor, retirees from their decades-long homes.

More problematically, buyers who paid stamp duty on earlier property purchasers don't want to suddenly receive an annual bill for land tax too.

This is currently happening in the ACT, where there is a mini-backlash against the near double-digit annual rise in rates (quasi land tax) on the principal place of residence in recent years.

The ACT is aiming to phase-in replacing stamp duty with rates over 20 years, with stamp duty rates only slowly declining but many people noticing their rising quarterly and annual rates bills.

Former Treasury secretary Ken Henry's 2010 Australia's Future Tax System Review found conveyancing stamp duties were one of the most economically damaging taxes – much more than worker income tax, GST, land tax and rates. David Rowe

The left-leaning ACT public nearly always votes Labor, so Chief Minister Andrew Barr's government has so far been able to resist the growing home-owner anger.


Hence, the beauty of the more pragmatic thinking taking place in policy circles now is giving future buyers the option to choose between upfront stamp duty or ongoing land tax. It would empower the individual to choose their own destiny. Previous buyers would not be hurt.

It would gradually wean state governments off volatile stamp duties on to a more fiscally sustainable and economically efficient broad based land tax.

The catch is the federal government would need to top-up state revenues in the interim, due to a tax revenue lag from people opting out of stamp duty and into periodic land tax payments.

Hence, it is why Bowen, Perrottet – who both face elections in coming months – and other state treasurers would need to be key participants in any reform.

John Kehoe is a senior writer in Canberra for The Australian Financial Review and is a former analyst in federal Treasury's Commonwealth-state relations division.