If all states and territories adopted the ACT's land and planning taxes it could raise an extra $27 billion a year, a new report has found.
Think tank Prosper Australia said this could potentially reduce income tax rates by 10 per cent through changes to Commonwealth-state grants.
Prosper Australia director of research and policy Tim Helm said the extra money could also be used to halve welfare withdrawal rates, which could result in an effective tax cut of up to 30 per cent in the dollar for one million workers.
"The ACT taxes land really well, in particular, because they capture windfalls from land rezoning, and if other states were to meet their standard there would be a huge pool of additional funding for tax reform," he said.
"Our research found that if other states taxed land like the ACT we'd have enough revenue to cut welfare taper rates in half, giving one million people an effective tax cut of 20-30 cents in the dollar, and putting cash in the pocket of two million more."
The think tank advocates to shift tax away from income and towards land, saying they want to ensure "the unearned income derived from land and natural resources is fairly taxed".
Propser also argues for stamp duty to be reduced. The ACT government has pledged to phase out stamp duty by 2032 and replace this lost revenue by increasing annual rates on properties over a 20-year period.
Homeowners in the ACT also pay land tax on properties they don't live in. The amount charged is calculated by using a fixed charge of $1535 combined with a valuation charge which is based on the unimproved value of a property.
The Prosper report shows the ACT has the highest effective land tax rate, including rates, with an average annual rate of 1 per cent of the value over the past five years. The national average is just over 0.8 per cent.
The report said if the rest of the nation adopted a similar tax rate on land this could raise an extra $15 billion a year in revenue.
It said an additional $12 billion a year could be raised if other jurisdictions made owners pay to rezone their properties, as the ACT does with lease variation charges. This would equate to an extra $27 billion a year.
The report said this money could be used to fund a universal income of $1000 or a 10 per cent reduction in the personal income tax take.
Dr Helm said switching to land based taxes would drive more changes.
"Adjusting Commonwealth-state grants and providing incentives for states to tax land and rezoning windfalls would be an attractive way for the Commonwealth to drive tax reform where it's most valuable, which is in how well states tax our most efficient base," he said.
"The stage 3 tax cuts debate was all about fairness and who wins and loses from different income tax proposals. That's fine, but this was not proper tax reform. Proper tax reform is about replacing bad taxes with good ones."
