‘Ultra-wealthy’ land tax could raise $3bn per year to slash stamp duty

The scheme, announced by the McKell Institute on Wednesday, seeks to impose a levy on ultra-wealthy landholders with portfolios valued at $20m or more – the top one per cent of households by wealth.

By taxing landholdings valued at between $20-50m at just 0.75 per cent and land values of $50m or more at 1.25 per cent, the McKell Institute estimates about $3bn could be raised annually.

Those funds, under the scheme, would be reinvested on a per capita basis to the states and territories on the proviso it is used to reduce stamp duty rates for new homebuyers – investors would be excluded.

McKell Institute Chief Economist Alison Pennington said the concentration of land wealth among only a small group of individuals in Australia was a key driver in rising wealth inequality.

“Average workers are forced to hand over one-quarter of their pay packet every fortnight, while ultra-wealthy landholders quietly accumulate millions of dollars in unearned gains that remain untaxed for decades,” Ms Pennington said.

“The Extreme Land Wealth Levy would be meaningless to the ultra-wealthy individuals affected, but would make a real difference to homebuyers struggling to afford their home, cutting stamp duty while boosting supply.”

Under the scheme, a person with a land portfolio of $21m would pay only $7500 per year.

Someone with $50m, meanwhile, could pay as much as $225,000 per annum.

Such a measure would address “a fundamental unfairness” in the tax system, Ms Pennington said.

“Australia already has a world-class form of wealth tax in state land taxes,” she said.

“What’s missing is a national system to account for ultra-wealthy landholders exploiting trusts and company structures to avoid tax, often with portfolios spread across multiple states. The ELWS solves that problem.

“A tax on land cannot result in less land being available, and it does not penalise improvements or productive investment. In fact, it can encourage landowners to develop vacant or under-utilised land, increasing housing supply.”

The proposed levy would be administered by the Commonwealth, using existing state land valuation systems.

According to the McKell Institute, it would apply only to land value, and not building or improvements.

Principal places of residence would be excluded unless if the land value exceeded $20m, as would primary production land, unless if it was deemed a hobby farm.

Qualifying build-to-rent developments would also exempt, with land being genuinely developed for new housing able to access a “time-limited deferral”.

Stamp duty has been a focus of federal, state, territory governments in recent years in the face of a worsening housing crisis and growing wealth inequality.

In NSW, the First Home Buyers Assistance Scheme provides a full exemption or reduced rate of transfer duty for eligible first homebuyers.

The federal government has also introduced its five per cent deposit scheme, where the Commonwealth essentially goes guarantor for eligible homebuyers.