An economist from Melbourne University believes he just might have found a way around the roadblock that's been stopping NSW and Victoria replacing stamp duty with land tax.
The swap has been commended by the Rudd government's Henry tax review, the Abbott government's tax discussion paper, and by last month's Productivity Commission review for the Turnbull government.
The Treasury believes stamp duty is one of the most distorting taxes and land tax one of the best, meaning that a swap would benefit the economy by as much as 72?? in every dollar raised.
But so far, only one state or territory has embraced it: the Australian Capital Territory, which is slowly cutting the rate of stamp duty on Canberra homes while lifting the Canberra version of council rates, a process that will take 20 years.
It can't do it faster because that would mean double taxing someone who paid full stamp duty before the change and then was hit by higher land tax afterwards.
An alternative would be to eliminate stamp duty immediately and to apply the land tax only to those properties that were bought stamp duty free. Eventually, after most properties changed hands, the land tax would be near universal.
But the main reason none of the states have done it is the short-term hit to revenue. Stamp duty is collected infrequently. Land tax would be collected more frequently at a much lower rate, every year or every quarter. But if the rate was set to make no-one worse off, the government would to wait years after properties had been sold to get back in land tax what would have earned immediately in stamp duty.
The proposal by Kevin Davis, research director of the Australian Centre of Financial Studies, in a paper released on Wednesday, is for state governments to sell their right to some of their future land tax collections in return for upfront payments.
"In each year following the abolition of stamp duty, the government will no longer receive the large revenue amount which would arise from stamp duty on house sales in that year," his paper says.
"Suppose that were $5 billion (a conservative estimate for the larger states). It would be fairly straightforward for the government to issue $5 billion worth of securities which provide the holders with the entitlement to the corresponding future stream of property tax revenue for the next 30 years."
Professor Davis says a byproduct would be the creation of a new low-risk, long-term asset class suitable for superannuation funds of the kind they get now by buying shares in privately run toll-roads and airports. For funds that wanted it, the payments could be designed to give them exposure to the residential property market.
The idea of "securitisation" isn't new. Home lenders securitise future mortgage payments and sell them to investors. In 1997 David Bowie issued so-called Bowie Bonds giving investors the right to the royalties from tracks including Space Oddity, Heroes and Ashes to Ashes for 10 years in return for an upfront payment.
Professor Davis says while many details would need to be worked out, he can't see why it wouldn't work. He says an immediate advantage would be to reward older homeowners who downsized. They would be tens of thousands of dollars better off, instead of no better off as they often are now after paying stamp duty. Australians would find it easier to move for work, and the land tax would impose a penalty on Australians who held onto land rather than using it.