Nassios, Jason ORCID: 0000-0002-0250-2608, Sheard, Nicholas ORCID: 0000-0003-4936-5126 and Adams, Philip ORCID: 0000-0002-1640-1293 (2020) The economic and efficiency impacts of altering elements of the ACT’s tax mix. Project Report. Centre of Policy Studies (CoPS), Victoria University, Melbourne, Australia.

Abstract

The Centre of Policy Studies (CoPS) was engaged by ACT Treasury (ACT TSY) to study the economic efficiency of the 20-year ACT Government tax reform package that began in 2012. The tax reform package is an effort to replace inefficient taxes with more efficient tax instruments, with the reforms designed to be revenue neutral. A combination of Computable General Equilibrium (CGE) and econometric techniques were used to answer these four important questions. Using the VURMTAX bottom-up multi-regional CGE model of Australia’s states and territories developed and maintained at CoPS, we ran a series of simulations to determine whether the ACT tax reform package had impacted the ACT economy in a measurable way, and whether there are diminishing or increasing marginal benefits from ongoing reform. In the first instance, we used a historical decomposition simulation over the period 2012 – 2018 to isolate and measure the impact of the ACT tax reform package. Our findings show that, ceteris paribus, the ACT tax reform package drove real GSP, real investment, real private consumption and real consumer wages in the ACT higher than they would otherwise have been by 2018. Our econometric analysis addresses how the tax reforms have affected the rate of turnover and the values of properties in the ACT. Expressed in terms of the proportional reduction in stamp duty, the effect of the policy on the rate of turnover has an estimated coefficient of 0.6. This means that a 10% reduction in the amount of stamp duty paid on the sale of each property is associated with a 6% increase in property sales. The estimated coefficient for unimproved land values is 0.2, meaning that a 10% reduction in stamp duty is associated with a 2% increase in land values. The coefficient we estimate for the mean transaction price is positive in magnitude but not significant, so it is not appropriate to infer a relationship between the reduction in stamp duty and the mean transaction price.

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