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Land Tax vs Stamp Duty: Push to fine-tune taxation base; First homebuyers could be allowed to pay off their stamp duty over several years
Topic Started: 13 Oct 2011, 12:13 AM (2,329 Views)
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It's time for a major change to stamp duty

By Peter Chittenden
Tuesday, 15 May 2012

When the GST came along on July 1, 2000 there was the "promise" that lots of other taxes, duties and charges, in particular state taxes would be abolished or at least reduced. But in the intervening years changes have been minimal and only at the margins, for example mortgage duties have been abolished in most states.

A policy change to remove or reduce the payment of stamp duty applied to real estate post-GST was and still is an illusive target. Today there are few indicators that any big changes are coming our way in the near future.

This is not to suggest that change will never come, in fact just the opposite. Various state governments are happy to use stamp duty concessions to stimulate various sectors of the market. They have become very comfortable with the idea of making concessions that are in reality no different from a promotion that a developer might offer.

Common incentives on offer can frequently target first time buyers, or older buyers or aim to stimulate construction activity. Sometimes these target groups are seen as disadvantaged and stamp duty savings can then be promoted in combination with other grants, like the FHB grant to directly stimulate activity.

However, this on-again, off-again approach can create market distortions and when the central idea is for example to stimulate the construction of new homes, it’s hard to argue why this application of stamp duty should not be removed permanently.

And I would have to suggest that such a change would need to be a national initiative. New construction is a major driver of economic activity and it has a huge flow on affect that runs deeply into many sectors of the economy and so the benefits appear obvious.

A national approach is desirable, to avoid different states simply chasing policy so their local market is not disadvantaged. Lets change the rules in this or that state so that an adjacent state does not gain all the advantages, appears to be a common theme. A national policy would also present a uniform market for international buyers looking at Australia, and avoid a major influx into any particular state. Again with the possibility of creating a local distortion.

The under supply of dwellings in almost all major markets is further reason to consider this permanent change to duty and with a predicted national undersupply of 170,000 forecast for 2013 (Source: BIS Shrapnel) removing stamp duty would hopefully kickstart the resources necessary to overcome this shortage.

Older buyers have a role to play

But this is not a simple area of policy, the predicated undersupply of new homes also needs to be compared with the already established housing stock, and there are some very interesting trends here that are for instance being impacted by older homeowners.

A study in 2010 by the Australian Housing and Urban Research Institute found that 84% of homes occupied by people over 55 were living in a home with one or more spare bedrooms. And while some of this spare capacity would be used for family or lifestyle reasons, downsizing was possibly being restrained by the impact of stamp duty.

In NSW there is an existing concession, where the Senior’s Principal Place of Residence duty exemption applies to people between 55 and 65 years of age buying a new house before 1 July 2012 when the concession is set to end.

Stamp duty concessions for older people downsizing would see more homes in established areas released onto the market and this would also have the impact of better utilising of existing infrastructure, as many of these homes would be in established areas.

Here I can see good reason for such a policy as funding new infrastructure is almost always sighted as one of the main reasons that high council levies apply in new residential development areas. But could I also suggest that this type of ‘recycling’ of existing homes and local infrastructure could be a solid argument to collect less stamp duty.

Such stamp duty incentives do produce structural change in the market as we have seen recently in Sydney. The $600,000 cap on the current NSW Home Builders Bonus has for example seen a big lift in the number of one-bedroom apartments coming onto the market, and they have proved popular with investors and first time buyers.

Post June 30 – what will happen in NSW?

When it comes to the undersupply of housing, I have already highlighted that NSW has the biggest shortfall of more than 101,000 dwelling forecast for 2013, and construction activity has lagged for many years. And this is even with some large land release area’s opening in the cities south-west and north-west.

Activity simply refuses to budge and this is despite what should be a big level of pent up demand, and yet regardless of the shortfall demand has failed to greatly boost construction. The pressure from pent up demand is somehow not materialising.

And while there will never be one simple answer, the impact of stamp duty must be counted among the reasons, and this would suggest that the current concessions for First Time Buyers should be extended across the entire market. The FHB market does not exist in isolation and market-wide activity would benefit.

A more general concession at a realistic price level and possibly over a sliding scale could help generate more extensive market activity.

Some may still argue that this could further dampen affordability if the exemptions for stamp duty was not only limited to first time buyers, but we need to keep in mind that there are other FHB grants and also these same buyers would have access to a wider choice of locations helping to create a deeper market.

The case for change

Stamp duty on real estate transactions is a big source of revenue for every state government. This is essential revenue, but does the burden fall fairly and is the ‘tax’ more complex than it needs to be. Clearly every state and territory government is happy enough to use stamp duty as a form of concession with varied and ongoing schemes, and so there are many precedents of sorts for change.

Australians generally pay stamp duty on all property transfers (accepting that there are varied and ongoing concessions) but on our principal residence we pay no capital gains and in 2012-13 according the Federal Treasury that concession will cost the federal budget $35.5 billion, that’s almost 9.5% of all federal government expenses.

Any move to change this policy would be almost impossible, but it is perhaps the absence of a CGT that permits other high property taxes, including stamp duty to be justified.

Stamp duty concessions are almost always tipped in favour of first-time buyers, and associated with new homes, but questions remain as to what impact this has on building activity. This is also as noted a more complex area because the concessions vary between states and they are almost always transitory.

Stamp duty is an unpredictable tax for the states and despite the cash flowing from the GST the revenue would need to be captured from other structural changes in the economy. But clearly stamp duty remains a barrier to everyone in the housing market, young, old and even those looking for greater flexibility with employment are possibly constrained by its impact, being reluctant to move.

There are, however, some more immediate changes possible that could include greater indexation of rates of duty, including the permanent removal of duty for first-time buyers and some appreciation of the fact that the duty applies to the final price of a new home where there would already be many other layers of taxation. When the duty is paid is also an area where policy could be modified, helping to reduce the up-front costs of buying a residential property.

With the NSW state budget set to be announced in two months' time, will change result with the possible application of duty concessions to the wider market?

However, let's hope that we do not take a lead from Queensland, where from August 1 last year stamp duty for owner-occupiers on property purchases increased. But in contrast at the same time to stimulate the building industry, discounts on stamp duty for anyone buying or building a new home were introduced, leaving existing dwellings to bear the brunt of the increases. That’s a mixed message by any conclusion.

Peter Chittenden is managing director for residential of Colliers International

Read more: http://www.propertyobserver.com.au/tax/it-s-time-for-a-major-change-to-stamp-duty-peter-chittenden/2012051454690
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Cut stamp duty to free up big homes, developers lobby says

By John Masanauskas
Herald Sun
May 23, 2012 8:59AM

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STAMP duty concessions should be used to encourage empty-nesters to leave their big homes, a developers' lobby group says.

This would allow growing families to move in.

The Property Council of Australia wants the Victorian Government to consider the option as a new report says Melburnians must accept more flats in the suburbs to accommodate rapid population growth.

But the Government said neighbourhoods would not be sacrificed for the sake of high-density living.

Released yesterday, the report, Making the Numbers Stack Up, said that while urban renewal dwelling targets would largely be met in the next few years, building apartments would slow after a cyclical peak.

Read more: http://www.news.com.au/money/property/cut-stamp-duty-to-free-up-big-homes-developers-lobby-says/story-e6frfmd0-1226364189951#ixzz1vf7ekWv6
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Stamp duty abolished for city apartments bought off the plan

* by: State editor Greg Kelton
* From: The Advertiser
* May 27, 2012 11:00PM

FIRST homebuyers could save more than $31,000 under a move by the State Government to abolish stamp duty on city off-the-plan apartments.

Other purchasers will save more than $21,000 as part of the State Budget.

The concessions will apply for the Adelaide City Council area, including North Adelaide.

Premier Jay Weatherill said the cut to stamp duty would help create a more vibrant city for people to live and work in and encourage higher density inner-city living.

Read more: http://www.adelaidenow.com.au/real-estate/news/stamp-duty-abolished-for-city-apartments-bought-off-the-plan/story-e6frefgc-1226368233123
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NotFooled
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The Bear Whisperer

The plan to encourage more apartment purchases by removing stamp duty may have unintended consequences. It could push prices up. It could attract first home buyers who, looking for something affordable initially, don't realize what they are getting into wrt strata fees down the track and don't understand how apartments may depreciate.

Selective manipulation of the markets by governments is a very dangerous thing.
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miw
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NotFooled
29 May 2012, 08:03 AM
The plan to encourage more apartment purchases by removing stamp duty may have unintended consequences. It could push prices up. It could attract first home buyers who, looking for something affordable initially, don't realize what they are getting into wrt strata fees down the track and don't understand how apartments may depreciate.

Selective manipulation of the markets by governments is a very dangerous thing.
+1.
This is based on the mistaken concept that it is more efficient to try to promote everything at once.

If you want to help FHBs, give them a blanket stamp duty discount why should only the FHBs who want to live in the city benefit? What you'll get is a bunch of property investment from FHB's parents.
If you want to help builders, do something about the $60-$100k it costs to develop a block before you even build.
If you want to encourage denser city living, change the Council bylaws.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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rob88
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Abolishing stamp duty and replacing it with land tax was recommended in the Henry Tax Review. The government has chosen to ignore this, along with the vast majority of other recommendations (something like 125 out of 134 have been ignored).

This behavior is a disgrace and endemic of the current state of politics. When the government seeks advice of experts they should take it. Most politicians have very minimal experience outside of a law degree, unionism and politics. If the government is going to ignore the advice of these experts then they should give some very good reasons for doing so. Being politically difficult is not a good enough reason.

Maybe we should take tax policy out of the hands of politicians in the same way we have monetary policy set by an independent board. These issues are too important to become political footballs. Good to see some state governments are doing something about stamp duty though. Well done ACT. SA, good start but nowhere near enough.
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Gillard takes aim at states over stamp duty

Tim Colebatch, Brisbane
June 13, 2012

Julia Gillard has renewed her push to cut company tax rates and taken aim at the states' stamp duties on home purchases, at the launch of the government's economic forum in Brisbane last night.

Opening the forum, the Prime Minister asked delegates to focus on how the nation could improve its competitiveness and increase labour mobility to ensure that Australian workers filled more of the jobs created by the resources boom.

She made it clear that despite scrapping her promise to lower company taxes, Labor would revive it if it had support from other parties. The tax cut was abandoned after the Liberals refused to support it and the Greens insisted it be restricted to small business.

''I've got no doubt the company tax rate should be lower - and no doubt the revenue base has to be maintained as well,'' Ms Gillard said.

She linked the issue of labour shortages in the mining sector to stamp duties on real estate transactions, saying: ''We've got to talk about labour mobility … We've got to crack this nut.

Read more: http://www.smh.com.au/opinion/political-news/gillard-takes-aim-at-states-over-stamp-duty-20120612-208ca.html#ixzz1xceEF1FL
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Tax plan for new housing

July 15, 2012
Natalie O'Brien

Every household in Sydney could be hit with a new tax to pay for future housing developments under a government shake-up of planning laws.

A review of the rules has suggested that residential rates on all properties should rise to boost levies and spread the costs of urban development.

The state government's Green Paper based on the review, which was released on Friday, does not rule out the new tax but supports new avenues for a ''fairer, simplified and more affordable system for infrastructure contributions''.

The review, The Way Ahead for Planning in NSW, was conducted on behalf of the government and recommends the principle of everyone pays. It advocates the biggest overhaul of state planning laws in decades and has been welcomed by the state's leading business organisation, the NSW Business Chamber.

"Land use is a key economic lever and having the right settings in place will mean that NSW is better able to attract investment, deliver infrastructure and generate jobs," the chamber's chief executive, Stephen Cartwright, said.

The chief executive of the developer lobby group, the Urban Development Institute of Australia, Stephen Albin, has said the present system of funding infrastructure is unworkable and a major barrier to new housing projects. At present, developers have to underwrite the cost of infrastructure in their own developments. The contribution is capped at $30,000 a house.

The authors of The Way Ahead, Tim Moore and Ron Dyer, both former state ministers, say a new tax is the only way to fund the significant gap between the amount that could be charged to developers without damaging the cost of housing affordability, particularly for first home buyers in greenfield estates, and the cost of the necessary local infrastructure required for the new areas.

''We propose that the settled areas of our community that have had the benefit, in the past, of their infrastructure being funded through general revenue streams rather than by specific development charges should bear part of the cost for new local infrastructure,'' they say in the report.

Otherwise, they warn, there will be a significant cost blowout in the price of new homes and affordability if the full costs are to be charged solely as developer contributions, which could lead to delays in some developments and social disadvantage in some communities.

Read more: http://www.smh.com.au/nsw/tax-plan-for-new-housing-20120714-222s4.html#ixzz20c4PWqx1
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Victorian tenants protected on land tax bills

July 16, 2012
Josh Gordon

Renters will no longer face the risk of being hit with the unpaid land tax bills of their landlords under changes to be introduced to State Parliament.

Under a little known clause in Victoria's tax compliance regime, the State Revenue Office has extraordinary powers to charge renters for outstanding land tax owed by property owners.

The clause, which has existed for decades to prevent tax avoidance, potentially leaves tenants facing bills for thousands of dollars even if they have only lived in the property for a short time.

In one recent case, debt collectors for the State Revenue Office demanded almost $40,000 from a Hawthorn couple because their landlord had failed to pay land tax for six years.

The couple, who had only lived in the property since 2008, were threatened with 13 per cent interest charges unless they paid within days.

Although the bill was withdrawn, with the revenue office putting it down to an ''administrative oversight'', the case drew attention to what is seen by legal experts as a serious anomaly. The Law Institute of Victoria has called for the relevant section of the land tax act to he either amended or repealed.

''The current law can result in harsh and unfair treatment of unassociated tenants, exposing them to their landlords' debts of which they have no knowledge,'' the Law Institute said in a paper. The institute said the revenue office was of the view that tenants could get around the problem by terminating their leases. But this was not ''beyond doubt''.

Read more: http://theage.domain.com.au/real-estate-news/victorian-tenants-protected-on-land-tax-bills-20120716-2257b.html
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HousingTroll
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No discussion of the Henry review? : replace 125+ taxes with Land Tax and Minerals tax.
No discussion of Prosper's platform?

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