A federal land tax of 0.1 per cent imposed annually on mainly wealthier and older property owners would be the best way to repay about $500 billion of government debt accumulated during the COVID-19 pandemic, a new study says.
Other viable options are to reduce concessions for capital gains tax (CGT), introduce an inheritance tax, or a tighter means test for the age pension by assessing the value of a retiree’s principal place of residence, says an Australian National University research paper released to The Australian Financial Review.
ANU economics professor Robert Breunig co-authored the study. 
The ANU paper sets an objective of over 33 years reducing federal government debt back to sustainable levels of about 30 per cent of GDP, after it blew out to more than 40 per cent, or $1 trillion, in the pandemic.
The least economically damaging way to raise more revenue to reduce debt would be via a flat federal tax on the unimproved value of land, said Robert Breunig, chairman of tax policy at the ANU’s Tax and Transfer Policy Institute.
Most of the government debt accumulated during COVID-19 came from lockdowns and other health restrictions designed to protect mainly older people who own most of the assets, such as property, he said.
“There is an intergenerational equity layer,” Professor Breunig said.
“Older people were most at risk at dying from COVID-19 and all this money we flooded into the economy has helped the asset holders who are typically older people.”
“So putting a tax on assets that are mostly held by old people is fair.”
“Otherwise, putting a tax on personal income puts more of the burden on young working people who are going to have to bear all this government debt going forward.”
The proposed federal land tax would raise almost $8 billion a year from a 0.1 per cent rate on the unimproved value of land – that is the value of property excluding houses and other buildings. Typically, this is about half the value of a residential property.
For example, a residential property with a house bought for $1 million would have an unimproved land value of approximately $500,000. Hence, a 0.1 per cent land tax would cost about $500 a year.
Treasurer Jim Chalmers warned in his economic update on Thursday that Australia has incurred “a trillion dollars of debt that will take generations to pay off”.
“We know that the debt burden left to us – the highest level as a share of the economy since the aftermath of the second world war, with deficits stretching beyond the decade – is growing heavier because the impact of higher interest rates on repayments,” Dr Chalmers said.
Labor ruled out imposing new taxes during the May federal election campaign.
The Rudd Labor government’s 2010 tax review led by then-Treasury secretary Ken Henry also proposed a broad-based land tax on property owners.
Another “reasonable” option explored by the ANU co-authors Trevor Rose and Professor Breunig was increasing the 10 per cent GST to 11 per cent.
However, this ranked behind the preferred option of a low, federal land tax, and the secondary options of including the principal residence in the pension assets test, introducing an inheritance tax, reducing the CGT exemption for the principal residence and cutting the CGT discount for other assets.
“Increasing the GST is not that different to increasing income taxes for working people,” Professor Breunig said.
“Older asset owners is who we want to tax.”
Professor Breunig said it was better to increase land taxes land because raising income taxes and corporate taxes would discourage work and investment in Australia.
“We tax income and endeavour too heavily, and we don’t tax land nearly enough.”
“Raising personal income taxes can lead to more use of incorporation and trusts and other tax minimisation.
“Land can’t shift overseas, and a land tax is difficult to avoid.”
At present, state and local governments impose similar land taxes for council rates, investment properties and business premises.
Professor Breunig said the imposition of a federal land tax could ultimately be used in negotiations with the states to eliminate their stamp duties on property transactions.
“The reality is the states are not using the land tax base effectively.”
The NSW government has explored phasing out stamp duties in favour of a land tax, but has so far limited the option to first home buyers. The ACT is about halfway through a 20-year plan to phase out stamp duty for an annual property tax based on the unimproved land value.
The ANU paper focuses exclusively on the revenue side of the budget to repay debt.
“This is not because we don’t think there shouldn’t be expenditure reductions as well,” Professor Breunig said.
Follow the topics, people and companies that matter to you.
Fetching latest articles
The Daily Habit of Successful People