Calls to nix stamp duty are nothing new in Australia, with many economists calling the tax unfair and damaging. But who wins when stamp duty is abolished and who loses?

In a commentary for the Real Estate Institute of Australia (REIA), Ray Ellis, CEO of First National Real Estate, said first-home buyers would benefit the most if stamp duty is axed.

"First-home buyers would certainly be beneficiaries because they wouldn't need to save as much cash to buy their first home," he said.

Empty nesters will also benefit, as it will also be easier for them to downsize. This would, as a result, benefit young families, given that larger homes with bigger backyards would be freed up.

There are proposals to replace stamp duty with a broad-based land tax. However, Ellis said doing so would put asset-rich but cash-poor Australians at a disadvantage.

"These are the people who budget carefully so they can stay in their much-loved homes, near to family, friends and essential amenities. Millions of Australians, including this group, would be required to pay bills annually that are the equivalent of council rates, or potentially much more," he said.

Ellis said this raises concerns on whether these Australians would be double-taxed or would they be forced to sell. Furthermore, he expects this would compel older Australians to consider reverse mortgages.

Land tax — more equitable approach?

A draft report from the NSW Review of Federal Financial Relations said a land tax would be a more equitable approach to funding government services, based on the principle of "beneficiary pays."

"The value of land is a measure of the benefits accruing to particular locations from infrastructure, services, regulation, access to markets, amenity, culture and community. A tax on land is, therefore, like a generalised user charge for the benefits society at large provides the landowner, which is a principled way of funding public services," the report said.

Ellis, however, said going the land tax route could mean a sudden fiscal shortfall just when significant investment in COVID-19 recovery programmes is needed.

"It's, of course, essential to consider tax reform but Australia needs to ask the question: would exchanging stamp duty for land tax be good policy, or merely a contemporary reaction to the nation's COVID-19 crisis?" he said.

Adrian Kelly, president of the REIA, said in a recent report that economic activity in Australia could be lifted by shifting the composition of taxes from high economic cost state taxes to lower-cost Australia-wide taxes.

"As the report notes, state governments cannot eliminate inefficient taxes without going into deficit or having to reduce expenditure substantially. Hence cooperation between the Australian government and the states is needed to undertake reform of inefficient state taxes," he said.

Broadening of GST

Another popular proposal is to source the revenue from stamp duty from broadening the goods and services tax (GST) base in the medium term.

Citing data from Deloitte Access Economics, the Property Council said replacing stamp duty with a broader GST base could boost consumption by $6bn to $9.6bn per year.

"This reform is in line with the recommendations of the Henry Tax Review and recognises the reality that broad-based land taxes will not be sufficient to replace stamp duty revenue, as has been demonstrated by the ACT's unsuccessful attempt to do so," the council said.

Ellis believes it is crucial to understand the implications and the outcome of these proposals.

“With billions of dollars at stake, our country needs to be sure that the policies it chooses today will be even better for tomorrow,” he said.