Stamp duty taxes need to be eliminated – and first home buyer grants do little to bandage the wound, according to some industry spokespeople.
A recent opinion piece by Robert Carling in the Australian Financial Review claims state governments enjoy real estate booms because rising prices and turnover combine to send stamp duty revenue ‘gushing’ into Treasury coffers.
“But the states’ reliance on this source of revenue is unhealthy and highlights the need to rethink how states are funded,” Carling said.
Tasmanian Smartline broker, Richard Denholm, largely agreed, saying stamp duty is ‘nefarious’ for first home buyers.
“For the first home buyer, it’s a big barrier because normally they have LMI as well.”
His state government has recently increased its first home builder (FHB) grant to $30,000 – something Denholm believes will help alleviate financial pressure on first home buyers. He warned that there are also likely to be unwanted side-effects.
“For what the [Tasmanian] government’s trying to do, which is stimulating things, the grant will do that. It will cover the stamp duty and LMI; for some people it might eliminate stamp duty…There is quite a bit of stock on the market, so long-term it might have an effect by pushing up prices.”
Furthermore, he says, the FHB grant is only for purchases of newly completed properties, or for buyers that are planning to construct.
“An unintended consequence could be that properties in the bottom of the market – there could be a lack of movement there.”
Rate Detective Finance broker Warren Dworcan said policy makers would need to devise other ways of earning revenue before abolishing stamp duty entirely.
“It would be nice in that it would increase property activity, although state governments would need to find alternative ways to supplement the stamp duty revenue, which may cut into vital services so I’m not sure it would be viable.”
Dworcan also says the negative effects that stamp duty can have on first home buyer figures in particular varies from state to state.
“The various governments may lower it to increase activity or raise it to put more money into different areas so it affects people in many ways… It’s a lucrative way for state governments to bring in revenue to spend on their economy for progress. However, it’s a hefty cost for people buying a property.”
AS the saying goes, if you put 10 economists in a room you'll get 11 different opinions.
However, right now there would probably be a rare consensus that the Australian dollar is too high and having a sustained negative impact on the domestic economy.
Ironically it is the most fiscally challenged layer of government that could be best placed to create the conditions that would enable a lower dollar — by reforming taxes on property in a way that creates room for the Reserve Bank to cut rates.
The states would only need to start talking credibly about increasing and broadening land taxes to take heat out of the housing market, thus freeing up, if not forcing, the RBA to do what it has basically said it wants to do.
This means compensation could start flowing to the “losers” from reform, at least the most vulnerable ones being mortgagees, before any additional taxes are paid.
The rest of us are still “winners” in as much as the additional money pumped into the economy and the lower dollar help strengthen growth.
For the baby boomers who have already paid off the mortgage on their tax-free home that is not included in any assets test, they might like to think of a land tax as the states unlocking equity in their home to pay for the services they will need in retirement (with more left over for their kids than if they took out a reverse mortgage).
Yesterday REIWA president David Airey issued a call in the West Australian newspaper for the WA government to abandon Stamp Duty and fund this by removing the many wheezes from the tattered State Land Tax. Hooray!
Airey says:
“It’s time to recognise that stamp duty on property as a means to raise revenue is clumsy, inefficient and out-dated.
“REIWA calls on the Government to have a serious look at broadening the land tax base to all property owners with a view to abolishing stamp duty altogether.
“The benefit to property owners is the simplicity of a modest, annual land tax as opposed to “bill shock”, when hit with a huge stamp duty tax in the tens of thousands when they transact.
“In some cases stamp duty is so prohibitive to potential buyers that they stay put, jamming the market and not allowing established homes to flow into the first-homebuyer pool.
“A broad-based land tax was proposed by the Henry tax review in 2010 and has merit.
“It’s time for a mature discussion around this proposal with the aim of creating a long-term plan for a better system of property taxes – one that’s not at the mercy of an anxious treasurer every financial year.
Removing Stamp Duty would do wonders for the flexibility of the property market. Lowering the cost of change would lift labor flexibility and productivity as workers could easily move to where their skills are most highly valued. Families could trade up and down as their circumstances change. Everyone benefits.
Increasing the number of property sales would also increase RE agent activity and income, but transaction costs are dwarfed by the greedy government take and their modest self-interest here is easy to forgive.
The changes to State Land Tax are easy to implement: flatten the rate, remove all exemptions and thresholds, and use the proceeds to strike out a tax that stifles productive activity. If the WA Barnett government embarked on this piece of experimental federalism, their property market would enjoy an impressive turn of speed. Arthritic eastern states, take note.
Before we get too excited by his long-sightedness, the REIWA also calls for another flabby First Home Vendor’s Boost – economic poison that inflates the cost of land everywhere for everyone. Sorry, Mr Airey, that’s a terrible idea. We need to end the era of sweeping government manipulation of the property market.
I cannot locate Airey’s West Australian article on-line. Attached is a PDF of the print original. Thanks to Seven West Media Limited for giving voice to an idea we all should embrace and to John Massam for the scan.
Labor has backed the concept of replacing stamp duty with a property tax as part of a tax reform agenda it is developing to combat the rising problem of housing affordability.
Mr Bowen cautioned he was “not flagging changes” to negative gearing but lauded the June 2012 change by the ACT Labor government in which stamp duties will be phased out over two decades in return for a property tax, introduced as a large hike in rates.
“The interaction of property tax, stamp duty, some good things have happened here in the ACT under Treasurer [Andrew] Barr’s leadership, which have been positive I think for housing affordable at a state tax level,” he said.
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