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Standing Committee on Economics
14/08/2015
Homeownership

COLLYER, Mr David, Policy Director, Prosper Australia

CASHMORE, Ms Catherine, Vice-President, Prosper Australia

[12:30]

CHAIR: On behalf of the committee, I now welcome the representatives of Prosper Australia to this hearing. I remind you that although the committee does not require you to give evidence under oath, the hearings are legal proceedings of the parliament. They warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter, and may be regarded as contempt of parliament. Would you like to make an opening statement?

Mr Collyer : Yes—I will not go on, though. Thank you for allowing me to speak today. Some background to our current crisis: I call it a crisis because the cost of continuing exceeds the cost of change. I will not drag you back to the Magna Carta, but to a founding philosophy of Australia—the settler compact. In a new country of unlimited land, conservatives, liberals and socialists agreed that all who lived prudent, careful lives could reasonably aspire to own land and build a home. Privacy, security and independence were available to everyone. This is no longer true, and your inquiry is proof of this sad reality. Today, property is cheaper on Malibu beach, California, than in Alice Springs, Northern Territory—much cheaper. To meet the market, first homebuyers need a large deposit, and must sign away a large share of their lifetime earnings, not for construction, but to gain title to the raw land and the right to build a dwelling. God help them if interest rates rise any time over the next 25 years. Property price inflation has fallen entirely to land. Construction costs, in real terms, have not budged in 20 years. We have world-beating land prices in the least densely populated country on Earth. Many fear a crash will end this land boom. I believe the damage such an event would cause is now less than the cost of continuing. A land bust would bankrupt many; propping up this fragile state of affairs will bankrupt us all.

I see four causes for this misery: restrictive planning that directs buyers to a handful of locations, all owned by developers determined to extract every cent from the sale; a massive infrastructure deficit that makes greenfield lands most unattractive, boosting the price of all well-located sites; a staggering appetite for debt, both in willingly assuming the burden, and by banks in extending it so freely; and very bad tax laws that extend every privilege to existing owners while weighing heavily on the landless.

Reserve Bank deputy governor Philip Lowe laid out the dilemma we face in his speech on Wednesday. He outlined the serious damage high land prices are causing. Quite right. We can fix the planning rules. We can build more infrastructure. We can regulate the banks to better judgement. But unless we change how and where we tax ourselves, land price booms and busts will continue to destroy lives. Our descendants will curse our lack of foresight. Prosper Australia's submission urges the Abbott government to impose a one per cent federal land tax, fully rebateable against state land tax paid, to oblige the states and territories to migrate their revenue bases away from taxes we know cause genuine economic injury. The Commonwealth would be entitled to argue this intervention is for sound economic reasons, and thereby dissipate the political fallout. I am now ready for your questions: it is a very challenging thesis we offer you.

CHAIR: Thank you for that. I might just comment that we have had a variety of opinions. A very wise man once said that opinions are like noses— everybody has got one. But we value some more than others, I guess, and that is what this is about. There is an extreme view, and you may represent that more extreme view, and there are some who will say that there is nothing wrong. But I think the idea of the inquiry, in its broader sense, is to gather facts and to assess that evidence and then to divine the best path forward. We are concerned that supply drives a proportion of investment housing, which I think is a real concern, because even if it has not happened to a great extent it has the capacity to eliminate the homebuyer. There is the impact of the tax settings and also the very important thing we would like contributions about is the opportunity for reform.

Mr BUCHHOLZ: I just want to pick up some of the points for discussion that you mentioned in your opening comments, in particular 'God help them if and when interest rates fall'. Given that we are at long-term historical lows in the interest rate cycle, and there is evidence that the interest rate cycle will tend up, can you give some oversight as to what this Armageddon looks like?

Mr Collyer : The possibility of a land price crash?

Mr BUCHHOLZ: If we return to long-term average trends.

Mr Collyer : The capacity to repay would diminish significantly. If we return to long-term trend rates, which is about seven per cent, from 4½, a lot of people will not be able to afford that. Even though the banks now claim they are allowing for this, people are obliged to borrow so much money for the land that a revert to mean would be extremely painful for a great number of people, particularly recent buyers. Anybody who has bought in the last five years would be in serious trouble. They now rely upon two incomes, not one, and if one of them loses their job they are in trouble, whereas before it did not matter so much, when they were reliant upon one income and house prices were a multiple of one income rather than a multiple of two, assuming everything went perfectly forever more, amen.

Mr BUCHHOLZ: So if someone bought a house when interest rates were at five or six or seven, their capacity would have been calculated with the two per cent default rate. At the point the loan was assessed, you have come into the lower end of the cycle; the banks now are currently assessing capacity at—

Mr Collyer : Three above.

Mr BUCHHOLZ: three above, or to seven, whatever that gets to. Where do you see the risk?

Mr Collyer : The risk is more about unemployment—if I could just change my stance a little bit—or underemployment.

Mr BUCHHOLZ: You mentioned capacity before—

Mr Collyer : Yes, capacity to pay over the long term. Now, we are facing the closure of the car industry, which has a lot of jobs which allow people with moderate skills to earn very good incomes, because they are part of a matrix, part of a machine, and therefore they submit. If they behave themselves and learn on the job they can actually make good incomes. This has been a very, very useful way for fairly unskilled people to earn good wages. If we remove those sorts of long-term enduring work opportunities for that cohort of people, prices in Broadmeadows, for example, or Elizabeth in South Australia, will take a tumble, because the people around them are not employed. We see that occurring already around Doveton and Dandenong, where casualisation and simply the removal of manufacturing jobs has had a big impact on them.

Mr CRAIG KELLY: You talked about zoning regulations, which you say is the problem. Who do you see as responsible? Is it the local governments, the state governments, the federal government? Is it a combination of them all?

Mr Collyer : Yes, it is all of them. If you go back many years, Dick Hamer, in Victoria—a hero—instituted what he called green wedges, which protected the river valleys. He said that you cannot build anywhere you feel like it; let's reserve some land for green wedges—a very visionary concept. But we then put a ring around Melbourne and said that you have to build inside that ring. Then we further subdivided that and said that you actually need to have each segment within that ring planned out as precinct structure zones. There is layer upon layer of bureaucracy that actually limits it, and of course that then blows out the developer time lines. They are now talking about 15 years between purchasing land and selling it. Holding land for 15 years is an enormous burden. It's big companies like Lend Lease. Lend Lease has 30 years of land, and they feel that they have to. They have 30 years of supply in their pocket. They feel obliged to carry that much land because that is how long it takes.

As I said, that is only one factor. We can fix that, if we actually said, 'Okay, Melbourne is now proceeding to a stage where all of the precinct structure zones'—I know this is very boring—'within the urban boundary are almost complete. They will be all completed within about a year from now.' So this impediment may well recede, but it may also be exploited by the landowners who could say, 'I'm one of the few people who actually have land to sell. You can't buy outside unless you want to buy acreages,' so these structural constraints persist.

Ms Cashmore : There are a few problems with the way the planning works in Melbourne. We have an urban boundary, and as soon as you put an urban boundary around anything you increase the land price in the zones where you can build within that urban boundary. The second problem is that anybody holding land in those areas is not subject to a land tax, so there is no incentive for them to turn over that property.

The way that developers will work is that they have to get a certain price for the land to cover the margins that they have bought for. So you will find that they will drip-feed that land onto the market in staged releases. So even though we have an certain amount of land supply, that land is not available. When we talk about supply and the availability of supply—in particular, the availability of supply that homebuyers need—most of our homebuyers, our biggest homebuyer market, are families with children, and families with children cannot live in apartments. Three-bedroom apartments are not affordable: they are above $700,000. That is the kind of housing that they need. Really, the urban boundary needs to go, and we need to find some way of unlocking the land so that it cannot be banked so easily in those areas.

Mr Collyer : So it is contestable, is one way of describing it?

Ms Cashmore : Yes.

Mr CRAIG KELLY: So some of the developers are actually land-banking areas to hold it back—to hold up the market?

Ms Cashmore : They have to.

Mr Collyer : They have to. We are not antidevelopment: this is not a class conflict matter. This is us saying, 'Here we have a structural problem where the developers are obliged to behave in this way that they do, and it is tying up the whole thing.'

Ms Cashmore : The planning process for putting roads and infrastructure in takes too long. We went to see the Metropolitan Planning Authority not so long ago, and it is quite a lengthy process. You are looking at around four years to get one of these precinct structure plans zoned for development. Once it is zoned—once they have worked out where all the roads and the libraries and the community centres are going to go—you can still end up with 50 per cent of that land belonging to a farmer who is not going to sell it off: he can sell it off to the highest bidder if he wants.

Once again, there is no incentive within those developments for developers to get their land onto the market and to get that supply out onto the market. Also, you get this 'leapfrog' development. There is evidence to suggest that the developers who benefit the most are those who can help provide the finance for infrastructure and so forth. There are a lot of complexities around the planning system which could be simplified and sped up. And it is essential to speed the planning process up, and also to put in an incentive for that land to be turned over—the best one is a land tax—to enable that supply to come onto the market.

Mr CRAIG KELLY: Just run over how you would see that land tax working?

Ms Cashmore : A broad-based land tax really should go with what we saw in the Henry tax review, so on a per square metre basis. Obviously, it would be lower in the areas where the developers are working. But it provides a constant reminder that you need to bring in some kind of income from that land: it increases the holding costs. You do not hold the land so much: you get the land.

What we have at the moment is a kind of preventative speculation, where developers need to buy a great supply of land in advance. The bigger developers are advantaged in that respect, because there is limited competition within the industry. The more land you can hold, the more you limit the competition of other developers coming in and buying up that land. It is essential to have some kind of mechanism where you get that turnover of supply on the fringes, just like Gavin Wood was saying about that safety valve—being able to expand cheap, affordable land. And our land should be dirt cheap, but when you go out into the fringe estates you are paying around $450,000 for a small—

Mr Collyer : A very modest price.

Ms Cashmore : A small block of land of around 400 square metres. Whereas you can get a bigger block of land when you are further in the suburbs. I do not know how well you know Melbourne; but, if you go into Glen Waverley, for example, they will not let you subdivide a 600-square-metre block of land. But go out into the outskirts, where there is land in abundance. You will go over paddock over paddock where no-one is using it, and you will end up buying a tiny little unit where the house takes up most of the land. The land prices are so high that the developers will cut their land rather than cut down their prices. Do you see what I mean?

Mr CRAIG KELLY: As an example in Canberra, there is a development at Watson up in the north part of Canberra, and they have cut them up. They look like about 300-square-metre blocks. Go 20 yards beyond the boundary, and there are thousands and thousands of square kilometres of open land. You think, 'Why did they need to cut it up so small?'

Mr Collyer : One can appreciate that a developer has to build roads, so you can imagine narrow frontages is a saving for a developer. However, what they are also doing is limiting the depth of the blocks. I do not know whether you know much about land valuation, but the land closest to the front is worth three times as much and the land at the back is worth very little. What the developers are doing—not in a cynical way; they are profit maximising—is reducing the depth of the blocks and saving on that low-value land at the back. They are turning it into high-value land by putting more roads in by decreasing the size of the blocks. There is a dollar in it and it is a very big dollar. Who can blame them? The customers cannot afford 700 to 800 square metres of land at these prices anyway.

Mr CRAIG KELLY: Isn't one of the issues if we are talking about Melbourne that all the growth is coming into Melbourne rather than the regional centres? It is similar in New South Wales. I will give you an example. Sydney is growing and growing. The other week I had to go down into one of the country areas through Harden, about 3½ hours out of Sydney. A three-bedroom brick house on a big block of land was $210,000.

Mr Collyer : But it is not commutable, is it?

Mr CRAIG KELLY: That is what I am saying. Isn't that one of the issues? However we have structured our economy for whatever reason, we have become capital city centric. The growth is occurring in there rather than in our regional centres.

Mr Collyer : There are some interesting experiments. I cannot say for the regional centres, but I certainly can for Melbourne. Regional centres have been bleeding population for a hundred years, so it is not a new phenomenon. Melbourne is changing under these planning guidelines. One virtue of this planning thing that is going on is that they are trying to turn Melbourne into a matrix and move away from a radial thing which funnels all activity to the centre. They are trying to develop activity centres such as Melbourne Airport as a transport hub, Monash University as an intelligence area, medical et cetera. Melbourne is actually blessed with two medical hubs: one around the University of Melbourne and one around Monash. These knowledge clusters can develop away from the CBD, and that is one of the aims of Melbourne planning. I think it is a worthy and honourable aim.

As far as getting them out to Ballarat or Bendigo, I think that is hard and I do not see how you do that. There are better minds than mine that have been working on decentralisation forever, and everyone can see the virtue in it, but nobody seems to be able to come to any practical outcome.

Ms Cashmore : There are two answers to decentralisation: you need affordable land and you need good infrastructure planning. The trouble with the planning system at the moment is it tries to constrain everybody to the inner cities. If you look at Melbourne from a bird's eye view, you have a very radial design. All the roads go into the city. What you are looking at with the planning that is going on at the moment is that they are upgrading inner city infrastructure. We have got new train lines coming into the inner city. They are talking about doing an underground tunnel. That is great for any homeowner who lives close to the city. It gives them the most benefits in terms of land value because of their access to services and facilities.

Mr CRAIG KELLY: Doesn't that only then increase the value of that land?

Ms Cashmore : It only increases the value of the land, which is the case for a land tax, because that value is not what the landowner has earned; it is unearned income. But the point about decentralisation is that only eight per cent of Melbourne's population works in the central areas of the city. Most of Melbourne's population works outside the city. The way to decentralise a city is to assist lateral, suburb-to-suburb travel, because that is what most people do. Trains are okay if you are going from point to point. If you work in the city, you can get off at the other end and you are at your job. But you know yourself that most of the time you need to drive. Once you get off the train, you have a bus journey or whatever to get where you need to go. When you look internationally and particularly in America at the cities that are growing the best and keeping their land prices low—you mentioned Texas. Texas has two very important factors about it. One is its decentralisation. There are only seven per cent of jobs, for example, that are downtown in Texas areas.

Mr CRAIG KELLY: Is that a specific government policy?

Ms Cashmore : Yes, there are two government policies. First of all, they do not have an urban boundary. They have no zoning policy, so it is very liberal supply policy. Second, their road network is excellent. They make sure their road network enables suburb-to-suburb travel. They also have a very good bus network. You get on the buses, and you actually can work on the bus. It is a little bit like—

Mr BUCHHOLZ: Is this like Boston or Dallas?

Ms Cashmore : Houston. Houston does the best out of all the towns in Texas. But the other thing is that Texas has no state income tax but does have very high property taxes. There is no point speculating on land in Texas, because you will not make any money out of it. There were two people who came down from Texas that I met a couple of years ago. I was saying to them, 'What is the most that you would need to spend of your income on a house?' They were young chaps in their 20s, and they said, 'The most we would need to spend to get in the best neighbourhood in Texas is three times our income.' What you found in 2008 in Texas was that, while the rest of the States was collapsing around it—Texas was not the only state, but it was one of very few—was that, because they had not had a land boom, they did not have a land bust. Texas's population continued to expand and grow.

I think what people are missing is that, when we talk about affordable housing, that is good for business and good for growth. If you can encourage people to work through the tax system but not speculate on housing through the tax system, you advantage business because you enable to start-ups.

Mr CRAIG KELLY: Is that lack of speculation in Texas brought about by the perception that there is not going to be this big increase?

Ms Cashmore : Absolutely.

Mr CRAIG KELLY: Would you say it is corrected here in Australia because people have this perception that housing prices are continually going to go up—that there is a bit of 'irrational exuberance', as has been said to this committee, with people thinking those prices will continue to go up and therefore diverting their savings or investing in housing rather than start-up businesses?

Mr Collyer : You can hardly blame people for getting on the bandwagon and enjoying the momentum. The momentum is there. It has been going the for 20 years. You would be crazy to ignore it. I do; I see it a poisoned chalice, personally. I do not own a house but am in the share market. But it makes sense for people, particularly if they do not understand the economics and finance, to say: 'The house prices have gone up. Mum and Dad say they made a fortune on the house, so I may as well do the same and pay whatever it costs to get started.' Whatever the price, they are doing it.

Ms Cashmore : I am a real estate agent and I work as a buyer advocate, so I work with buyers all the time. I have rarely met a buyer—sometimes the odd downsizer—who has not been concerned about what the house will be worth in 10 years time. Part of that is a need because they cannot enter the market where they are going to end up. In other words, if you want to buy one of the high-rise apartments downtown, you are not going to get much growth out of it when the supply is increasing. The consciousness is that whatever you buy needs to be able to last you for around five to seven years, and then you need to use that to leverage up into something else. The time that the first home buyer enters the market is about 33 years if you look at ABS data. They usually have to form a couple before they enter the market. An apartment really is not big enough to cut it because, if they are then thinking about having a child, a one- or two-bedroom apartment is not easy to get into, yet that is the supply that we are increasing.

But it does not matter who they are. Even if you get somebody who is older, they are still concerned about where their house price is going to go and how they are going to benefit their children in the market. There is a consciousness of the difficulties of getting in and purchasing now.

CHAIR: It is fascinating. I know what you are saying with regard to the US. It is not just Texas; there is not that expectation or speculation in housing and housing affordability. We had some evidence—you might disagree with it—that said that housing as a percentage of income was similar in Britain, Canada, the United States and Australia and had some experience with the US. I thought that maybe was not correct. Would you agree with that?

Ms Cashmore : The coastal towns in the US really are very similar to our towns here. If you go into LA, New York or anything like that then you have completely different drivers in the market. But what you found with places like Texas, New Hampshire, New Jersey and other areas is the things they have in common. Each state has a certain amount of control over its tax system and its income tax system. You notice that the ones that manage to keep their house prices affordable have two factors. One is that they have good, liberal supply policy and the second is that they have a higher taxation on housing and less taxation on productivity, so they leverage those two. But it is very difficult to analyse a market like the US, because each city is very different. New York has a lot of foreign money going into it, just as London does. But, if you go to the UK, the south-east of the UK is completely different from the north. The north is still in a relative depression with the house prices; they are selling off in Liverpool, for example, for a pound if they go in and they renovate. Similar things are happening in some of the states in America.

So policy can solve this. It is not difficult to have affordable housing, I think that is the lesson that you need to take from it. There seems to be this consciousness that it is something that is unachievable and every country has the problem, and that is just not the case. There are places where they have managed to keep housing at around three to four times income and it has not strayed much from there, and the real key to it is to stop speculation in the housing market. And Gavin made some good points—

Mr BUCHHOLZ: You are quite comfortable for that ideology to transfer into the stock market as well?

Ms Cashmore : Well, the stock market is very different from land. The thing is that you have three factors of production: land, capital and labour. Land works very differently because, first of all, it is fixed in supply. It basically sits at the bottom of the economy. We all need it; we all need land. Everything around us is made from land and we live and sleep and breathe on it, and there is only so much that is in areas where we can access jobs and security and all of those things that give us what we enjoy in our society. So land has to be treated very differently from how you would treat investments in the stock market. For example, when we are talking about the taxation of land, with increases in land price—you know the old sayings that they grow rich in their sleep without working or economising, as old John Stuart Mill said—when you look at the housing cycle and study the housing cycle, it has never been any different. As soon as people start having that feature that their land price is going up and they are getting rich without doing anything, that is very stimulating to what happens in the behavioural responses. So land needs to be treated very differently, because we all need to have access to it and we all need security. When you see unemployment going up, what we are saying is that the reason that unemployment is going up is that your land prices are getting high. High land prices cause the destruction of the economy and employment; it is not unemployment first.

Mr CRAIG KELLY: Could you expound that a little bit more.

Ms Cashmore : When land prices go up in value, it is more expensive for businesses and start-ups to get into land. You see small retail shops closing. You see big supermarkets like Coles land-banking sites to limit competition. The more the business needs to spend on rent, the less it has to spend on wages and to employ people. Not only that, but our taxation system really plays into that. Things like payroll tax and the taxes that we have on productivity really play into unemployment. They discourage employment, yet we encourage the speculative rise of house prices. What we are saying is to change the policies so that you pull taxes off productivity and you put them onto those areas like housing. Because land is not a factual production—you cannot produce more serviceable land; it is fixed in supply—when you raise a tax on land, all that happens is that land prices go down because you are taking more of a tax. If you buy into a unit and you know that you have owners' corporation fees to pay, you factor in the yearly owners' corporation fee and you pay less for the unit. If there were not any owners corporation fees, you would pay a lot more to get into that unit. A land price works very similarly: if you know that you are going to be paying the certain amount each year for your land price, that gets capitalised into lower land prices. As Gavin said—and David has said this numerous times in the work that he has written—it is an automatic stabiliser to the market.

Mr Collyer : When prices go up, up goes your land tax. When land prices come down, down goes land tax too, and actually it is a very powerful stabilising mechanism.

CHAIR: Just in regard to the current crisis—the debatable situation where there is a crisis—where we have had the APRA ask the banks to reduce their lendings to 80 per cent, do you think that has been a timely move?

Mr Collyer : I wish they had done earlier. The masterly inactivity from our economic bureaucracy is astounding in the face of what has happened. I do not know whether you have seen recent graphs, but the proportion of investors and the borrowing by investors into the Sydney and Melbourne market has gone parabolic. There is an urgency about action that was not there a year ago, but the preconditions have been with us for some time. It has just gone berserk in the last little while, it really has—Sydney and Melbourne investor activity in particular.

CHAIR: We heard previous evidence from Gavin recommending automatic stabilisers—it would be best when an interest rate is going to impact on a property market that something is there to counterbalance the impact to keep a stable market.

Mr Collyer : He is talking about a slightly different matter to what we are. He is afraid of the bankruptcies that inevitably come about in a crash and he also wants to moderate them. It is a novel concept of actually sharing the risk back with the banks. The banks have their own risks, in my opinion, and they hardly need any more, given their level of gearing. If you wanted the banks to co-participate in land ownership you would have to have a much lower gearing level in the banks to compensate for that. I do not see that as a practical alternative. The automatic stabiliser I am talking about with land tax means that when you get prices rising strongly, up goes the land tax on everybody. If you have been to an auction recently you often find people clapping at the end of the auction because their land prices have gone up. If you had a decent land tax in place people would be booing because their land tax has gone up, because that blighter over there has just raised their costs.

CHAIR: So you have an automatic stabiliser.

Mr Collyer : You have an automatic stabiliser. It stops the excesses both on the upside and on the downside. That is one feature of it. I want to talk particularly about stamp duty, which is a very, very bad tax relative to land tax. For each dollar raised in stamp duty the cost is $1.70. Recent Treasury modelling puts the cost of land tax at 90c in the dollar, so every time the state governments collect a dollar in stamp duty we are throwing away 80c or 90c. We are wasting money, and it is not as if it is going to government. It is not going to the citizens. It is being thrown on the ground. It is just a terrible, terrible waste—simply because, politically, people say, 'This is too hard to do. We can't do a land tax because the people won't wear it.' I regard that as an untested assumption. I have seen no evidence to support that view. It is just a view that people hold, and I would like to think that we can step beyond this notion that has been around for so long that the art of taxation is plucking the most feathers without the goose hissing. We have to get beyond these ideas and start talking about taxes that cause the least harm, or confer an actual benefit. In my opinion, and in Treasury's opinion as well, land tax confers a benefit. It actually confers a benefit upon us, in many, many ways.

Ms Cashmore : This is the Treasury modelling that you would have seen.

Mr Collyer : That is the Treasury modelling.

Ms Cashmore : The reason is that you have foreign buyers in the land market, and, of course, if you have foreign buyers who are paying a land tax they are paying a tax that is spent in the domestic economy, so it actually causes a benefit. This is where you have stamp duty.

Mr Collyer : And that costs us real money.

CHAIR: Would you have a suggestion on how best to transition from a stamp duty to a land tax?

Mr Collyer : The transitional arrangements are not that complicated. You would simply do it. There are two groups you need to be careful of. One is recent buyers, and the way to protect them is to simply credit them with their stamp duty. Imagine if you bought a house in the last five, six or seven years—that sort of time period. The stamp duty still weighs upon them. After that it ceases to be an object. You just credit them with a hypothetical land tax that they would have paid in the intervening period, so it just sort of wipes off. That would work.

CHAIR: Could you, rather than say, 'We're going to stop stamp duty today', say, 'We'll make a reduction of 20 per cent each year for the next five years as we bring in land tax.'

Mr Collyer : That is being done in the ACT as we speak, over 20 years. It is a very long time frame and it is going to feel like agony. The transitional arrangements are messy. They really are. You will remember the introduction of the GST. Changing the tax laws is hard work. Do not get me wrong; I am not trying to say this is easy. You will all remember the GST transition phase, and it was agony. This is hard stuff, and I am not trying to make light of it at all. But it is very doable and the benefits to all of us are profound.

Ms Cashmore : The ACT are doing it on the government rates base. They have a few problems because they have made it a progressive schedule, which is not as advisable as doing it on just a flat rate of taxation. It is important that, when you remove stamp duty, you do not replace it with the GST, because stamp duty actually reduces house prices. It limits the leverage that a buyer has of getting into the market by as much as the tax and, as has been shown in studies that have been done, often more than the tax. So, if you were to take stamp duty away immediately and whack on a GST, you would find that house prices would go up. When replacing stamp duty it is essential to replace it with something like a land tax. It needs to be phased in, but whether it needs a 20-year period is difficult to say. The reason it is best to do it on the rates is that everybody pays rates, so it is not just investors as it is at the moment with land tax.

Mr Collyer : This is hard stuff. We know this is really tough. There is a political cost to it. You will also be aware that the advice from state and federal Treasury to parliament again and again is: use land tax; use this tax base and get away from the second-order regressive taxes and taxes with high dead-weight losses; these are very dangerous taxes; give them up. The Henry review said to introduce two land taxes and get rid of 125. These things are very possible and doable, and I urge you to courage and conviction.

CHAIR: Thank you so much for your evidence and thank you for your attendance here today. If you have been asked to provide any additional material, would you please forward it to the committee secretariat. You will be sent a copy of the transcript of your evidence to which you can make corrections of grammar and fact. On behalf of the committee, thank you very much for you input today, your evidence and your papers. On behalf of the committee, I thank all of the witnesses who have appeared today.

Resolved that these proceedings be published.

Committee adjourned at 13:07