Many reviews have concluded stamp duty is a highly inefficient form of taxation.
The federal government’s 2010 Henry tax review found the economic welfare loss for every dollar of stamp duty raised is 35c. For a broad based land tax like the one Mr Perrottet wants to phase in,that loss is only 8c.
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One of the main arguments made against stamp duty is that the large up-front cost discourages property transactions and that means land is not always allocated to its most valuable use. It may prevent people from shifting house when their personal circumstances change or stop them moving to take up a job elsewhere. Stamp duty has also been branded inequitable because those who move house more often – either voluntarily or by necessity - pay far more tax than those who stay put.
The NSW government claims its new model would deliver immediate economic benefits. Mr Perrottet says it would inject more than $11 billion into the economy over the first four years and boost economic output by 1.7 per cent over the long term.
It is not hard to find economists who support the reform. AMP's chief economist,Shane Oliver,says the NSW plan to phase out stamp duty is a “great move” that should have happened years ago.
He says now is a good time to make the change because governments can borrow very cheaply to make up for any revenue shortfall during the transition.