Group calls for property levy of $500 to $700 a year

A PROPERTY levy could raise $7 billion a year and would be the best way for states and territories to raise revenue to address falling budgets, according to a new working paper.

Property Taxes, the second in a series of Grattan Institute working papers on tackling Australia's weakening fiscal position, finds that a levy of just $2 for every $1000 of unimproved land value would raise $7 billion a year.

It would mean an annual charge of $772 on the median-priced Sydney home, $560 on the median-priced Melbourne home, and lower average rates in other cities and the regions.

Grattan's recent working paper, Fiscal challenges for Australia, found that state budgets are under pressure, with spending in health, education and other areas growing faster than GDP.

State revenues are also threatened by the Commonwealth's decision in last year's budget to substantially reduce promised funding to the states for hospitals and schools.

"Attention is focussed right now on the worsening Commonwealth deficit, but states and territories have a looming funding gap, and have provided little insight into how they are going to fill it,' says Grattan CEO John Daley.

Property Taxes argues that a broad-based property levy calculated from the council rates base would be the best revenue measure to fill that gap.

"While property taxes can be unpopular because they are highly visible and hard to avoid, they are also efficient and fair, and don't change incentives to work, save and invest."

"Unlike capital, property is immobile - it cannot shift offshore to avoid taxes.

"Over the last 25 years, taxes on property and property transactions have been the only significant 'growth taxes' for States, with revenues keeping pace with the economy."

"Our proposal is manageable for property landowners, and protects low-income people. Low-income retirees with high-value houses could defer paying the levy until their house is sold," says John Daley.

The working paper argues that the levy could also be used to fund the reduction and eventual abolition of stamp duties, among the most inefficient and inequitable state taxes.

Shifting from stamp duty to a property levy would provide more stable revenues for states and add up to $9 billion in annual GDP.

Grattan's next paper in the Budget Repair series will address reform to superannuation tax concessions.

You can read the working paper here