The study looked specifically at property transfer duties (taxes paid by property purchasers in all Australian states) and insurance duties (taxes paid on insurance policies). It found they caused losses in economic activity of 80 cents and 40 cents per dollar of revenue raised respectively.
The research showed that even if the rates for these two inefficient state taxes were significantly lowered, the damage to the economy continued to exceed alternative revenue sources for government.
The modelling examined a scenario of reducing property transfer duties to one hundredth of their current rates – or from an average level of 4.5% to 0.045% – finding the economic cost was still 39 cents on the dollar.
This remains much higher than the 25 cents in economic costs attributable to both the Goods and Services Tax (GST) and to income tax.
“Property transfer and insurance taxes are highly costly at even very low rates, and so it is well past time that a serious effort was made to eliminate them completely,” he said.
“It is well known that many state taxes are relatively inefficient, but the challenge on the eve of the Australian Government’s Budget announcement on 25 October, is to consider whether the tax system across the Commonwealth is efficient, equitable and sustainable.”
The modelling suggests that dumping the Government’s controversial plan for so-called ‘Stage 3’ tax cuts - due to come into effect in July 2024 and forecast by the to cost about $30.5 billion annually by 2031 – would raise enough Commonwealth revenue to help the states eliminate stamp duties on housing transfers.
The researchers determined these are the to the Australian economy among all the property transfer duties the Government collects. Eliminating insurance duties, and the remaining share of property transfer duties on commercial, industrial and retail property, could then be funded via a modest rise in GST.
Our modelling shows a package of this kind would be budget-neutral across the Commonwealth, and unlock an economic dividend worth about $935 per household.
The CoPS research is part of a growing body of evidence calling for reforms to inefficient state taxes.