Delivering the state budget last month, NSW Treasurer Dominic Perrottet announced his intention to reform stamp duty.
Supported by a consultation paper, the state Treasurer seeks to achieve a system whereby a purchaser of land in NSW could elect to pay tax either up front on the acquisition of a property (and continue to pay land tax annually where applicable), or alternatively pay an annual property tax based on the unimproved land value of the property (this would also absorb any applicable land tax liability).
“When it comes to state tax reform, what Mr Perrottet has done is clever,” said Andrew Mills, director, tax policy and technical, at The Tax Institute, and the driving force behind The Tax Institute’s tax reform project, Project Reform. “He has not only opened the NSW state tax reform debate, he has done so through open consultation, and proposes to soften the impact of change by giving choice.”
The purpose of tax reform is to look to the future and enhance economic sustainability to reliably fund all our country’s services and infrastructure needs.
Mr Mills notes that there are many issues with state stamp duties. Firstly, economists generally agree that they are one of the most inefficient taxes, given the cost to the economy is so high. Additionally, not only do stamp duties impose a significant impost on property transactions, creating barriers to entry for some, but the resultant tax collections are negatively influenced by downturns in property markets.
“Leaving the choice of rates to one side, converting a lump-sum stamp duty into an annual property tax improves the health of the entire state tax system. An annual property tax not only provides greater certainty in forecasting for state expenditures, more importantly it smooths tax collections, ensuring the impact of adverse economic cycles are lessened,” Mr Mills said.
The challenge of creating long-term sustainability remains in our federal tax system. There is a disproportionate reliance on corporate and personal income tax. Consumption taxes, GST, represent only around $60 billion of the total $400 billion annual tax collections (i.e. around 15 per cent).
“Depressed economic cycles result in lower incomes and profits, hence lower tax collections at a time when governments must spend to stimulate the economy,” Mr Mills said.
“There needs to be a rethink of the entire federal tax system. None of the taxes can be considered in isolation.
“GST reform must be a part of a broader package involving changes to income and corporate taxes as well as the transfer system. It is certainly possible to design a system which better balances our income and consumption taxes. Our greatest challenge with reforming GST, however, is in its present design and alignment required across the states and territories to achieve any change.
“We need our politicians to work together on tax reform. The country needs all of our leaders to come to the table with an understanding that real reform is needed if we are to guarantee the economic viability of the whole country, as well as each of the states and territories.”
The not-to-be-missed Accountants Daily Strategy Day will travel through Melbourne and Sydney in August to equip accounting professionals with the latest industry updates and tips for modern practice management as well as the latest cutting-edge technology, processes, strategies and trends shaping the future of accounting. Visit the website for more information: www.accountantsdaily.com.au/strategy-day