Finding 200,000 of NSW’s 2.8 million properties pay land tax, the report suggested home buyers could be given a choice between paying stamp duty or an annual land tax on their new house.
Over decades, all homes would eventually be moved on to the tax, replacing stamp duties that currently account for $7 billion or 24 per cent of NSW’s own revenue.
Road funding would also be overhauled, with a congestion charge for the Sydney CBD and a road user charge for electric vehicles, while car registration, stamp duty and motor vehicle insurance would be axed and replaced with distance-based charges.
Mr Perrottet said the idea was to change the tax mix, not increase overall taxes, but he argued the states were likely to need financial support from Canberra.
“In the past there were competition payments from the federal level to encourage states to reform,” he said.
“In many ways, we would go on our own and do it ourselves. But working together, we can achieve more.”
Any changes would also upend the current way the $66 billion GST pool is distributed among the states, which was overhauled by Scott Morrison when he was treasurer to placate ongoing concerns by Western Australia over its share.
Mr Perrottet said he believed the GST allocation system would have to change to reflect the efforts of states to improve their economies, arguing they had to help drive reform.
“The states shouldn’t just be passengers in relation to reform. We should be driving opportunities for the reform agenda to the federal government,” he said.
Federal Treasurer Josh Frydenberg, who will oversee the nation’s largest budget deficit, has made clear the states will have to cover the costs of any reform. He encouraged all administrations to consider change.
“The government has already undertaken significant tax reform and will continue to look to opportunities to drive a fairer and simpler tax system,” he said.
While no state openly rejected the NSW proposals, many are concerned about giving up their own revenue sources such as stamp duty in return for a larger GST. There are also serious concerns about proposing an increase in the tax during the nation’s worst recession since the 1930s.
Victoria’s Treasurer Tim Pallas said the state and federal governments had worked closely together through the coronavirus pandemic, paving the way for possible tax reform.
“We share the view that there’s never been a better time for economic reform, because we can’t pretend we can return to a position of consistent economic growth without it,” he said.
Former prime minister John Howard said unless the Morrison government wanted change, nothing was likely to happen.
“State treasurers … they can call for changes to what is still a federal tax but in the end change has got to be led by the Prime Minister and the Treasurer of the day and unless they want a change, well it’s not going to happen,” he told 2GB.
Liberal member for the Sydney seat of Mackellar, Jason Falinski, said low broad-based taxes would be preferable to hiking the GST.
“The states are the purveyors of the two most damaging taxes, stamp duty and payroll tax, and they can – without any assistance from the Commonwealth government – reform these very easily,” he said.
“They can move from stamp duty to a land tax and pay roll tax to a state-based tax.”
Property Council chief executive Ken Morrison said while the report correctly identified stamp duty as a substantial economic impediment, there were concerns about going to a broad-based land tax.
“There is a compelling case for the GST to do much more of the heavy lifting in providing state and territory governments with the revenue they require, as well as enable the abolition of bad taxes such as stamp duty,” he said.
The Electric Vehicle Council likened the proposal to tax electric cars to putting a tax on nicotine patches to make up for a fall in cigarette excise.
“Australia has even more to gain from EVs than most other nations given the fragility of our fuel security. But instead of helping drivers fill up on local electricity, this review proposes discouraging the use of EVs on NSW roads. It’s a very, very strange recommendation,” council chief executive Behyad Jafari said.
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.