By Erinna Giblin
One of Australia’s most-loathed taxes could be scrapped as Australian leaders consider how best to cushion the economic blow from COVID-19.
Stamp duty is the added cost to buying a home that many Australians baulk at, especially for those in increasingly expensive capital city markets. But now the tax could finally be up for review as state and federal leaders leave no stone unturned in their attempt to support Australia’s economy post-Coronavirus.
Leaders around the country are joining in the conversation around whether or not the unpopular levy is an efficient revenue stream for propping up the economy post COVID-19.
NSW Treasurer wants to ‘think creatively’ about replacing stamp duty
Dominic Perrottet, Treasurer in Gladys Berejiklian’s Liberal government in New South Wales, has been touting the economic benefits of dropping the unpopular Land Transfer Tax, AKA stamp duty, which, if abolished, would save homebuyers tens of thousands of dollars on their next property purchase.
Mr Perrettot’s campaign against stamp duty could shave $26K off the cost of buying a median-priced home in his state, with Sydneysiders set to save about $40K.
Mr Perrottet told realestate.com.au Tuesday, almost every economist agrees that stamp duty is an inefficient tax.
“It’s a barrier to people entering the property market and changing properties to better suit their circumstances throughout their lives,” he said. “It is also variable due to the cycles of the property market.
“The challenge is to find an alternative which lowers the overall tax burden on people, provides for greater choice and flexibility and ensures people who have not paid stamp duty are not disadvantaged.
“Now is the right time for state and the Commonwealth governments to be working together and engaging in a conversation to work out the best options.”
Replacing stamp duty has ‘in-theory’ support from the Federal Government
Stamp duty rates vary wildly from state to state, but homebuyers in Victoria and New South Wales pay the most stamp duty. So, if the latter state, which relies heavily on this revenue stream, decides to change its policy, it could lead to other states following suit.
Federal Treasurer, Josh Frydenberg, was positive in his responses to questions on the subject at the National Press Club today, citing a recent report from the Productivity Commission, which found that stamp duties reduce mobility while also increasing house prices.
He congratulated efforts being made by New South Wales and Victoria to look into changing the “state tax mix”, but reiterated that decisions around whether or not to keep stamp duty was very much a matter for the states to decide.
“We’ll continue to have a discussion with [New South Wales and Victoria] about a whole range of issues, we’re meeting as treasurers every week, and certainly, in the case of Tim Pallas and Dominic Perrottet, it is a very productive relationship about a whole range of issues,” he said.
What does stamp duty mean for the state’s budgets?
Stamp duty is a huge revenue stream for the states, sometimes responsible for up to 22 per cent of all tax collected, so it’s fair to say the states will have to be careful when deciding on their next move.
Realestate.com.au’s head of economic research, Cameron Kusher, said it was encouraging to see that the New South Wales Government was seemingly becoming serious about removing stamp duty.
“It is an inefficient tax that is punitive to those that transact property and it discourages upsizing and downsizing and also has an impact on workforce mobility,” he said.
“Stamp duty is also an incredibly unreliable source of revenue for state governments. From 2017-18 to 2018-19, stamp duty revenue in New South Wales fell from $8.664 billion to $6.875 billion, a drop of 20.6 per cent in one financial year. New South Wales’ stamp duty revenue in 2018-19 was the lowest it had been since 2013-14.
“The impost of stamp duty also adds to the upfront cost of purchasing a property, so a reduction in the up-front cost of purchasing is a positive development for potential purchasers, and it should mean that they are able to purchase sooner.
“What is not clear from the statements by the New South Wales Treasurer is how will the $6.875 billion in stamp duty revenue be replaced because they can’t simply forego that money.”
What replacing stamp duty could mean for buyers
If stamp duty were to be abolished, buyers could soon find their next purchase to be considerably more affordable.
However, that doesn’t mean they wouldn’t wear the cost.
Mr Kusher said some form of annual land tax seems the most likely alternative to stamp duty, but its cost, operation and the changeover process is unclear.
“Assuming [New South Wales] wants to use a land tax, there will need to be considerations as to how to tax land; how to manage land tax for those that have recently paid stamp duty and; how to assist low income and pensioner households that may not be able to afford land tax,” he said.
“Not having to pay stamp duty will presumably increase someone’s borrowing capacity so they can afford a more expensive property. On the other hand, assuming [stamp duty] is replaced by an annual land tax, the ongoing cost of owning a property will be higher [due to the impost of land tax].
“You would hope people consider those trade-offs from the outset in terms of paying more for a property versus the ongoing cost of owning that property.”