Alternative design details for a revenue neutral tax reform package to replace conveyance duty, narrow base land tax and stamp duty on insurance with a broad base property tax are described. Optional design details include: the taxes to be replaced; for the replacement tax, land or property for the base and then disaggregate for different broad uses of property and by state, and a flat or progressive tax rate schedule; and, different transition strategies. Replacing the three taxes with a comprehensive property base tax would require an average annual tax rate of about 0.4 per cent, or a trebling of the current local government tax rate. The comparative implications for economic efficiency and distribution of the tax burden of the design alternatives are evaluated.
A comprehensive land base and flat rate wins on efficiency gains, but it would have very different tax distribution effects compared with that of the current taxes to be replaced. By contrast, a property base and a progressive rate schedule reduces the magnitudes of the redistribution effects at a cost of a partial loss of the potential efficiency gains. Further disaggregation of the replacement tax with different rate schedules by category of property use reduces redistribution effects and efficiency gains, but still with a net efficiency benefit. A gradual transition to the reform package modifies some equity concerns, but delays realisation of the efficiency gains.
Melbourne Institute of Applied Economic and Social Research 2017