Using taxes to pay for infrastructure projects, land taxes or stamp duty?
A number of studies have sought to estimate the “economic cost” of various taxes in Australia. With the current debate on land value capture being identified as a source of funding for potential major transport infrastructure projects, such as high speed rail, what mechanism should government’s use? Land value capture options include betterment levies, municipal rates and stamp duty.
According to recent economic modelling by The Treasury and independent consultants over the last seven years, stamp duty on conveyances are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax.
On average, the studies found that municipal rates or land taxes have close to 0 marginal excess burden while stamp duties have around 0.64 marginal excess burden.
In our view the economics of the funding options should be an important consideration for governments when preparing feasibility studies and business case. NineSquared has previously published research on this issue at the Australian Transport Research Forum in 2015.
| Municipal rates and land tax MEB ($) | Stamp duties on conveyances MEB ($) | |
| Australian Treasury (2015) | -0.10 | 0.72 |
| KPMG (2010) | 0.08 | 0.34 |
| KPMG (2011) | 0.09 | 0.80 |
| Independent Economics (2014) | -0.08 | 0.71 |
| Average of studies | Appx 0.00 | 0.64 |
Sources:
The Australian Government the Treasury (2015) Understanding the Economy-Wide Efficiency and Incidence of Major Australian Taxes, April 2015.
KPMG (2010) CGE analysis of the Current Australian Tax System, Canberra.
KPMG (2011) Economic analysis of the impacts of using GST to reform taxes: A report prepared for CPA Australia, September 2011.
Independent Economics (2014) Economic impacts of negative gearing of residential property: Report prepared for the Housing Industry Association, July 2014.