Australia’s ongoing debate over property taxation has often highlighted the inefficiencies of stamp duty – a transaction tax imposed by state governments on property transactions.
Our new study provides new quantitative insights into this issue, using spatial economic analysis to quantify the broader economic benefits of nationwide stamp duty reform.
A barrier to economic efficiency
Stamp duty remains a key source of revenue for Australian states, accounting for 27% of total state tax revenue. However, it is widely recognised as one of the most economically inefficient taxes.
While it is well established that stamp duty suppresses housing transactions, our new study quantifies the wider economic effects of stamp duties and reforms on the national economy.
Using a spatial general equilibrium model calibrated to data from over 2,100 Australian cities and regions, the study identifies two main channels through which stamp duty reduces social welfare:
- Housing market channel: By increasing the cost of property transactions, stamp duty lowers housing turnover, creating market inefficiencies and generating welfare losses.
- Productivity channel: By raising the costs of moving, stamp duty discourages labour mobility. This results in an inefficient allocation of workers across regions, ultimately reducing national productivity and economic welfare.
The productivity channel operates in two interconnected ways. First, stamp duty deters intercity migration to high-productivity areas, which tend to face higher effective tax burdens due to progressive rate schedules and elevated property values. Second, it discourages intracity relocations that could boost productivity – such as workers moving closer to job centres to reduce commuting times.
These frictions mean that Australia’s workforce is not operating at full potential, with labour productivity falling short of what could otherwise be achieved. The study extends previous research that focused primarily on the housing market, offering a fuller picture of the economic consequences of stamp duty and the potential gains from reform.
Quantifying the national gains
The study simulates the long-run effects of replacing existing residential stamp duties across Australia with a broad-based annual land tax, using the rate structure proposed in the (now-abandoned) New South Wales stamp duty reform.
The results are striking: household welfare – measured by real GDP per capita – would increase by 3.57%. Notably, 95% of these benefits stem from the productivity channel, with the remaining 5% attributed to the housing market channel.
In quantitative terms, the productivity channel alone drives a 3.38% long-run increase in economy-wide labour productivity. To put this in context, Australia’s labour productivity grew at an average annual rate of 1.2% in the two decades prior to 2021. Replacing stamp duties with a land tax could boost this rate by about 17 basis points per year, raising it from 1.2% to 1.37%, if the gains are spread evenly over 20 years.
While the productivity gains are substantial, the benefits through the housing market channel are relatively limited. This is due to a balancing effect: eliminating stamp duty in high-productivity areas initially lowers housing costs, but as more workers relocate, demand-driven price increases offset much of the initial improvement in affordability. This dynamic underscores the value of a spatial modelling approach, which captures such indirect effects often overlooked in analyses focusing solely on direct housing impacts.
Crucially, the benefits of stamp duty reform are not confined to specific regions. While some cities may experience population growth and others declines, households in every city would enjoy net welfare gains.
Spatial and distributional insights: policy implications
The study highlights the spatial effects of stamp duty across states and cities, revealing considerable variation in labour movements. In some areas, local employment is projected to grow by nearly 3%, while others may see declines of up to 6%.
At the state level, the analysis suggests that workers would relocate from states with currently low stamp duties and low labour productivity to those with higher productivity and higher stamp duties. This pattern arises because the reform disproportionately reduces housing costs and mobility barriers in high stamp duty jurisdictions.
Similar dynamics play out within states. Workers are projected to shift from low-productivity areas with relatively low effective stamp duty rates – such as rural regions – toward high-productivity urban centres like Sydney and Melbourne, where stamp duties currently impose greater frictions on mobility.
These spatial shifts highlight the need to integrate equity considerations into the design and implementation of tax reform. Although national welfare improves overall, some regions may experience labour force gains at the expense of others, raising distributional concerns about winners and losers.
An important policy implication is the need for complementary measures to support adjustment over time. As labour relocates both between and within states, reforms should be accompanied by coordinated efforts in infrastructure investment, housing supply expansion, and the provision of public goods. These steps can help ease potential disruptions and ensure the benefits of reform are broadly shared.
The study also acknowledges that its model does not fully capture distributional effects across different household types. For example, frequent property buyers would benefit disproportionately under a land tax system by avoiding large, one-off stamp duty payments. Understanding these distributional effects is crucial for designing equitable and politically feasible reforms.
Opportunities to further inform the tax reform debate
The findings of this study highlight the need for continued policy dialogue and development around stamp duty reform. By revealing substantial, previously unappreciated productivity gains – particularly through improved labour mobility – the research broadens the case for reform beyond housing market efficiency alone.
Future debates should consider several important dimensions to ensure that reforms are both effective and equitable. These include evaluating the dynamic adjustment pathways, distributional and spatial effects, alternative reform designs, and implications for Commonwealth-state financial relations.
Conclusion
This study provides compelling new evidence that stamp duty reform can deliver substantial economic benefits for Australia – primarily by improving labour allocation and boosting productivity. By employing spatial modelling grounded in real-world data, the research offers a powerful analytical tool for policymakers.
To fully unlock the potential benefits of such reforms and ensure they are both effective and equitable, future policy discussions must address the dynamic, distributional, transitional, and fiscal dimensions of stamp duty reform. As Australia seeks to revive productivity growth and build a fairer, more efficient tax system, evidence-based analysis will be essential to guiding and shaping successful reform.
The views expressed herein are solely those of the author and do not reflect the views of the Office of the South Australian Productivity Commission.
Further reading
Chang, Philip, Jeffrey Hole, Yan Liang, Jakob Madsen, & Xueli Tang. 2025. “Stamp Duty and Spatial Misallocation.” Macroeconomic Dynamics. 2025;29: e96. doi:10.1017/S1365100525000227
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