Stamp duty, reviled by the public and real estate industry but beloved of state governments, looks set to undergo major reform in several states, if not nationally.
Stamp duty on housing appears on the verge of a national overhaul, as New South Wales leads the charge towards major reform.
Long the bane of the real estate industry and homebuyers alike for being inefficient, worsening the country’s housing affordability crisis, and discouraging people from moving or downsizing, it is also a major source of revenue for the states.
NSW Premier Dominic Perrottet is pushing forward with a plan to replace stamp duty with a property tax opt-in scheme.
Homebuyers would be given the choice to either pay stamp duty up front or pay a smaller annual property tax. Once a property has been designated as attracting land tax, it would remain so, even when resold.
But the NSW premier has also made it clear he does want to move without federal government support.
“I believe stamp duty is the worst tax that any government can have,” Mr Perrottet said.
“It is a massive impediment for people getting into the housing market.”
“We need the federal government to help the states finance reforms to drive productivity to improve social outcomes like housing affordability, health care and education,” Mr Perrottet said.
That collaboration may eventuate, with state treasurers meeting in Brisbane on 22 July to discuss reform options.
Tim McKibbin, Chief Executive Officer, REINSW, said there needed to be wariness about swapping one tax for another, which may result in unintended consequences that could distort the market.
“For instance, this reform has the potential to create a two-tiered market,” he said.
“Like-for-like properties, one of which will incur stamp duty and the other that will be subject to the ongoing property tax, may not be in equal demand.
“The prices achieved for these properties may differ because of this.”
The latest Revenue NSW figures on transfer duty revenue were released last week.
More than $1 billion in stamp duty was collected during May, taking the financial year’s takings to more than $2 billion above forecast with another month to go.
“Obviously the state’s dependence on revenue from property purchasers is excessive and most agree, from an affordability perspective, that stamp duty is a bad tax and a major burden for people but we question whether replacing one tax with another is the right solution,” Mr McKibbin said.
The move from NSW has inevitably shone a spotlight on stamp duty reform in Victoria, where it represents 27 per cent of the state’s own-source revenue.
“The New South Wales Government is in a desperate attempt to fix their budget mess.”
– Western Australian Government media statement
Danni Hunter, Executive Director of Property Council Victoria, said stamp duty is one of the least efficient and most harmful taxes and a review is overdue.
“Victoria needs a fresh, transparent, sensible review about how it raises its revenue,” she said.
“This review needs to examine all elements of state taxation, looking at the current over-reliance on property taxes, especially taxes like stamp duty, which suppress and discourage economic activity.
“We have to work towards creating a sustainable state tax system that ensures Victoria is Australia’s most liveable and economically competitive state.”
The NSW government has estimated that, once introduced, an optional annual tax would collect about 20 per cent less revenue, which equates to a projected shortfall of about $2.5 billion a year. In Victoria, the figure is thought to be close to $2 billion.
Steve Douglas, Executive Chairman of Australasian Taxation Services, said either stamp duty or GST derived from new residential property and land needed to go.
“When you consider it is the state governments that ultimately receive GST, even though it is collected by the Federal Government, then this a clear double dip because the states also receive stamp duty on the transaction to the tune of 4-6 per cent (excluding separated building contracts) and that makes the purchase of a new property extremely expensive.”
“A simple option here is to remove GST, which would instantly drop the prices by 5-7 per cent by the saving in GST that developers currently get charged when they sell a property.
“Not only does new construction create more housing stock for ownership or rental, but it is also a significant economic boost and job creator, so this reduction has social and economic advantages and would likely not have a real cost to state governments.”
Truly national reform, however, still seems unlikely.
Western Australia is set to rake in around $2.3 billion this financial year from what it refers to as transfer duties.
The WA Government has ruled out following NSW’s lead, issuing a public statement that, “it would lead to higher cost-of-living pressures on everyday Western Australians” and that the NSW Government is “in a desperate attempt to fix their budget mess.”