The spatial and distributional impacts of the Henry Review recommendations on stamp duty and land tax

This report is the second Final Report of a project that examines the impact on supply and affordability from implementation of the Henry Review recommendations in relation to negative gearing, land tax and stamp duty. There are two main recommendations from the Henry Review on tax reform that have a direct bearing on supply and affordability. The first is to introduce a savings income discount of 40 per cent on the net rental income (including capital gains) from most non-business assets other than shares. The impacts of this discount on housing supply and affordability were examined in our first final report. The second recommends the abolition of stamp duties on conveyance and their replacement by a broad based land tax that is levied on a per-square-metre and per land holding basis, rather than retaining present land tax arrangements.

This report aims to assess the extent to which the Henry Review recommendations on stamp duty and land tax would affect the costs of purchasing and holding properties across geographical locations, and offers estimates of their capitalisation into land values. Our study sample comprises houses and vacant residential land within metropolitan Melbourne in the year 2006. The analysis exploits a novel database developed by Taylor (2011). The database links records from the Victorian ValuerGeneral property sales and valuations datasets. The final merged dataset contains detailed information on each property transaction’s sales price, date of sale, land size, age of dwelling and a series of other characteristics that offer a rich source of spatial information. The two datasets have been linked for all Melbourne municipalities.