Pathways to state property tax reform, AHURI Final Report No. 291

Reforming state and local government taxes that apply to property can contribute to creating a fairer and more sustainable housing system as well as delivering additional economic and social dividends.

The politics of subnational property tax reform is challenging and requires support and commitment from all levels of government if it is to be realised. Reflecting on these challenges this report proposes a nationally coordinated incremental strategy with clearly defined short, medium and long-term objectives.

• Short-term administrative reforms. These include the further integration of state and local property tax collection, enhanced data sharing between state and national revenue authorities and, over time, the establishment of a nationally consistent valuation regime and property register.
• The creation, short to medium-term, of a simpler and fairer revenue neutral transfer duty regime as a foundation for more substantive reforms. New modelling reveals that a flat 6 per cent transfer duty rate with a carefully designed threshold would result in over 60 per cent of property buyers at the bottom of the price distribution paying less transfer duty.
• A medium to long-term strategy (10–20 years) to replace transfer duties with a broad-based recurrent property tax. This report models a range of scenarios using 2015–16 Corelogic data of all residential property in Australia. This analysis reveals that a modest annual property tax of between $47 and $130 per annum on median value properties could fund a 10 per cent reduction in transfer duties. This annual property tax could gradually be increased over a period of 10 to 20 years to offset the revenue currently sourced from existing transfer duties on residential property.

The incremental yet nationally coordinated reform strategy with clear long-term objectives outlined in this report provides a practical pathway to reform Australia’s subnational property tax regime which will create a more efficient and equitable housing outcome.