Economists have called for stamp duty and insurance taxes to be scrapped entirely after their analysis found they imposed steep economic costs, even at low rates.

A study by economists from Victoria University, Jason Nassios and James Giesecke, has found that stamp duties and insurance duties were highly inefficient taxes, respectively costing the economy 76 and 39 cents per dollar raised.

“Keeping inefficient taxes but raising only small amounts may seem politically easier, but our results show it still imposes high economic costs per dollar. Narrow-based taxes like these should be removed entirely from Australia’s system,” the economists wrote for The Conversation.

Inefficient taxes can shrink the economy by discouraging productive activities such as work, saving, investment or mobility. Some taxes are more damaging than others, the economists’ analysis found.

For example, stamp duty discourages mobility by imposing high costs on moving houses. These costs could deter an empty nester from downsizing or a professional from moving for a new job.

These distortions bring economic consequences, including less efficient use of housing stock and less efficient allocation of labour.

Insurance duties discourage insurance uptake, making the tax a poor tool for raising even modest government revenue, the study found.

The other two tax types included in the study, GST and personal income tax, imposed a much smaller economic cost – approximately 24 cents per dollar raised. The economists modelled different scenarios to identify the most efficient tax mix, based on the four included taxes.

The most economically efficient combination saw the complete abolishment of stamp duty and insurance taxes, with the shortfall made up by GST (48 per cent of replacement revenue) and income tax (52 per cent of replacement revenue).

The study found that this mix would deliver a welfare gain equivalent to a one-off payment of $935 per household, and lift the economic damage of GST and income tax to approximately 25 cents per dollar raised, lower than the economic cost of insurance and stamp duties.

What is economically ideal isn’t always politically feasible, the economists noted. For example, raising the federal income tax and scrapping state-based insurance and stamp duties would deepen fiscal imbalances between state and federal governments.

Furthermore, industry leaders have raised concerns that Australia’s tax mix has already become overly reliant on income tax, placing an outsized burden on working Australians.

Over half (51.6 per cent) of Australia’s tax take comes from personal income tax revenue, over double the 2022 OECD average of 23.6 per cent, 2022–23 ATO tax statistics showed.

Both major parties have also flagged an aversion to raising the GST rate. Liberal senator Jonathon Duniam broadly slammed the prospect of tax hikes stemming from the government’s upcoming productivity roundtable.

“I’ve never ever understood or heard anyone tell me that increasing taxes or broadening the base of taxes in any way helps productivity,” Duniam told Sky News on Tuesday(?).

“So the idea that this is an option on the table to boost productivity, I think, is absolutely ridiculous.”

Treasurer Jim Chalmers has also suggested that GST hikes would not be on Labor’s tax reform menu.

“I suspect the states will have a view about the GST. It’s not a view that I’ve been attracted to historically. But I’m going to try not to get in the process of shooting ideas between now and the roundtable,” Chalmers told the National Press Club in June.

As an alternative, the Victoria University economists suggested that state payroll taxes could be lifted to cover the stamp duty and insurance duty shortfall, with an efficiency cost of approximately 22 cents per dollar raised.

Despite the political challenges and complex negotiations brought on by substantive tax reform, the researchers said that scrapping inefficient taxes would pay future dividends.

“Some taxes, especially stamp duty and insurance duty, are inefficient at any level. Replacing them sooner means greater long-term gains for Australians,” they said.