Grand bargain needed on tax reform
Now's the time for the Commonwealth to show it is serious about tax reform. They could start this week by working with the States and Territories on a program to phase out inefficient taxes like stamp duty.
The experts all agree stamp duty has to go. In the ACT we’re following the recommendations of our local Quinlan Tax Review – and the national Henry Tax Review – by phasing out this and other inefficient taxes. We're national leaders, which is why I was invited to share our tax reform story at the Housing Industry Association Summit in Sydney earlier in the week.
Tax reform is alive and well in the ACT. We’re well on our way to abolishing insurance tax. It’s a bad tax. Why would you use taxation to penalise people for taking out insurance? From 1 July 2016, nobody in the ACT will pay tax on insurance.
Stamp duty is a bad tax too. It locks first homebuyers out of the housing market.. It traps older people in a family home that’s too big when they’d rather move somewhere more suitable. It stops people moving on when a partner dies or a marriage breaks up
That’s why stamp duty has to go and already, just a few years into our tax reform, someone buying a $500,000 home will pay almost $6000 less in stamp duty than they would have paid in 2012.
People complain that politicians don’t take the long view. I don’t blame them. That’s why I’m serious about getting rid of these bad taxes, even though it is a hard process and, in the case of stamp duty, one that will take decades.
It’s the right thing to do, not just for our children and grandchildren, who will otherwise struggle to enter the housing market, but for anyone who needs to move house but is prevented by stamp duty.
I’m lucky to be Chief Minister of a jurisdiction where smart people with a strong sense of fairness understand the need to reform for long-term benefit. Tax reform can be controversial though, particularly if there’s an opportunistic political opposition that's willing to put their own short-term political interests ahead of what's in the best interest of the community.
The Prime Minister and Federal Treasurer have both claimed to be serious about reform. I want them to prove it. Today I’ll encourage Treasurer Hockey to establish a national tax reform fund to create the right incentives to encourage states and territories to follow the ACT on tax reform.
I will suggest he models it on the successful Keating Government National Competition Policy agreement (http://ncp.ncc.gov.au/pages/overview). A similar incentive scheme could be set up to encourage states and territories to phase out bad taxes.
If the Commonwealth can come to the party on tax reform, everyone can benefit from a fairer tax system.