Scrapping stamp duty and taxing the land is the only fair solution


This week, a Canberra couple celebrated a significant victory over the ACT government. Roozbeh Araghi and Luke Dorset bought a home-and-land package in the northern suburb of Crace in 2009; thus began a long dispute over how much tax they were obliged to pay. A tribunal and then the ACT Supreme Court found they owed only $20 in stamp duty, not the $16,800 they had been charged. The problem lay in how the property contract was drafted: the court ruled the pair could only be taxed on the land, which was worth just $81,000, and not on the unbuilt townhouse. The government finally resolved this week not to appeal against that decision.

Mr Araghi said the legal battle had been personally ''very draining''. His and his partner's determination is admirable. Their persistence has identified a flaw in ACT tax law and paved the way for hundreds of other home owners - perhaps thousands - to receive similar rebates.

However, their victory does not necessarily help Canberrans, many of whom will ask how it is fair that someone pays only $20 in stamp duty when the land and townhouse they bought was priced at $433,900. Most Canberra home owners did not baulk at paying a very hefty tax bill when they bought their property. The ACT is particularly dependent on stamp duties to fund its municipal and territory services: everything from rubbish collection to its schools, hospitals and justice system. Yet an unknown number of Canberrans can now avoid making that contribution to public revenue. Hopefully, the damage to ACT Treasury coffers is limited.

This dispute has again highlighted why the ACT needs tax reform, and why the Gallagher government must not shy from its resolve to abolish unfair, inefficient fees. For example, stamp duty on housing contributes about a quarter of the tax revenue collected by the ACT government. Yet, presently, fewer than 9 per cent of Canberrans pay it each year. Like many of the taxes imposed at the state or territory level, stamp duty is costly to administer. It is also a volatile, unpredictable source of revenue that makes it difficult for governments to budget accurately. Former federal Treasury secretary Ken Henry, whose thorough review of Australian taxes was published in 2010, described stamp duty on housing as ''highly inefficient and inequitable''. He also noted it discouraged older people in particular from moving into housing that better suited them as they aged and became less mobile.

A good tax - from a government's perspective, at least - is one that is cheap to administer and almost impossible to avoid. It also helps if the tax applies very widely, because that lightens the burden on individual taxpayers. The perfect tax, in this respect, is land value tax. Land cannot be hidden: governments record the use and ownership of all land in Australia. This no doubt helps explain why taxing land has always been so difficult politically: no matter how clever one's accountants are, land tax cannot be dodged.

Dr Henry recommended abolishing many of the narrow, inefficient, unfair taxes currently levied on Australians - including stamp duty, payroll tax and others - and replacing them with a simpler tax on land value. Unfortunately, his sensible, considered advice has been largely ignored or cast aside as too difficult. The sole exception has been the ACT, where the Gallagher government began, in 2012, a generational switch to land tax that it says will be completed in 10 to 20 years' time. The benefits will be immense. As such, it is disappointing that the ACT's Liberal opposition campaigned strongly against the policy at the last election. Equally disappointing has been the refusal of other jurisdictions to embrace similar reforms.

Chief Minister Katy Gallagher was equivocal this week when asked how she would respond to Mr Araghi and Mr Dorset's triumph over the taxman. ''I wouldn't rule out whether we need to clarify other parts of our law … to make sure that we are getting the stamp duty we think is legitimate for those properties,'' she said.

There is no need to hesitate, Ms Gallagher. Close this particular loophole immediately and push on with reforms that ensure everyone pays an appropriate amount of tax.