Impacts of reforms to date stage 1 Revenue neutralityChanges in residential general rates to date for houses & unitsImpact of tax reform on householdsImpact of tax reform on businessStage 2 reforms 2017-18 - 2021-22 Commercial conveyance duties removed for most transactions from 2018-19 Residential Conveyance duties continue to reduce every year General rates increases moderated & more equitable
IMPACT OF REFORMS TO DATE STAGE 1
In the 2012-13 Budget, the ACT Government began a 20-year program to reform the Territory’s taxation system. The first stage
of reform – from 2012-13 to 2016-17 – concludes in this Budget. The second five-year stage of reform starts in 2017-18.
Over the 20 year tax reform program inefficient taxes like conveyance duty and insurance duty are being abolished and the revenue foregone is being replaced through the general rates system.
The switch from duties to rates will ensure that we have a stable source of revenue to fund high quality services into the future. It also ensures our economy is stronger – creating more jobs.
The 2010 Henry Tax Review found that states and territories levied some of the worst taxes in Australia. It recommended that revenue from these taxes be replaced with more efficient taxes, such as a broad based land tax. It estimated that these reforms would deliver significant economic benefits through increased productivity. Later reports from Deloitte Access Economics, the Grattan Institute and the McKell Institute, in the context of the ongoing tax reform debate, have also acknowledged that abolishing inefficient taxes will deliver economic benefits including productivity improvements. The ACT is the only jurisdiction in Australia undertaking these reforms.
The chart below shows that over the first stage of tax reform, inefficient taxes (conveyance and insurance duties) have been reduced from 24 per cent to
16 per cent of overall tax revenues. While we are transferring our revenue source from an inefficient to an efficient tax base, we are not increasing revenue overall. The ACT is still a relatively low taxing jurisdiction. Our own source tax revenue is the second lowest of any jurisdiction in Australia in terms of share of Gross State Product. In some years, total revenue collected from conveyance duty may be greater than a previous year, even though the conveyance duty rates for each transaction will reduce every year. This is due to a range of market factors, including changes to property prices, the number of properties sold and the composition of property types transacted, i.e. houses, units and commercial properties. In 2015-16 for example, the share of conveyance duty as a per cent of the total tax mix increased slightly (from 15.8 per cent in 2014-15 to 17.4 per cent in 2015-16) as a result of a number of large commercial transactions.
It illustrates why conveyance duty is a volatile revenue source, and is not a sound revenue base on which to rely for future budgets. Notwithstanding annual variations, the impact of reduced duty rates will result in total conveyance duty revenue collections declining over the medium term.
Figure 1 Conveyance and insurance duty revenue as a percentage of total tax revenue