Treasurer Joe Hockey’s recent call to scrap stamp duty has reignited an ongoing debate on one of Australia’s most controversial taxes.
Mr Hockey met with state and treasury ministers in August in an unsuccessful bid to urge them to follow the ACT and South Australia’s lead and start phasing the “unsustainable” tax out.
Following the meeting, he announced:
“We know that there’s quite a bit of speculative activity in residential real estate and therefore transaction taxes on residential real estate – even though they are not good economic taxes – in the current environment to remove stamp duty on residential property would only fuel speculation in that market.
That was not seen as a particularly good idea.”
Despite the outcome of the meeting, Mr Hockey’s attempt to remove the tax has sparked a wave of support from the property industry.
HIA Chief Executive Industry Policy and Media Graham Wolfe described the tax as “the most inefficient tax in Australia’s entire taxation system”, while AVJennings CEO Peter Summers said it acted as a barrier to “people having the freedom to make the housing choices they wish to make because of the significant cost that comes with making any such change”.
Stamp Duty: A Quick Guide
So what is stamp duty?
It’s a tax imposed by governments in all states and territories on all transfers of land or sales of property (including gifts of property). Each state has a different levy.
Concessions may apply within certain states to parties such as pensioners, first home buyers, deceased estates, family farms, principle place of residence and off the plan sales.
This year, the ACT Labor Party under the leadership of Chief Minister and Treasurer Andrew Barr, committed to phasing out stamp duty over the next two decades in favour of a property tax.
The South Australian Government also announced this year that it would abolish stamp duty on commercial property transactions by 2018, and cut stamp duty immediately on the non-property part of business transfers.
Stamp Duty and Housing Affordability
HIA Senior Economist Shane Garrett said since late 2014 the “burden of Australia’s most inefficient tax has become heavier in most states.”
“In New South Wales, Victoria and the Northern Territory, the typical stamp duty bill now amounts to over $20,000. Stamp duty bills have increased particularly sharply in NSW and Victoria since late last year,” Mr Garrett pointed out.
He said stamp duty was clearly a “major impediment to housing affordability”.
“It is a particularly onerous tax on new housing – in many instances stamp duty is paid multiple times as transactions occur during the new dwelling’s life cycle,” he said.
“This is one example of the inequitable tax treatment of new housing relative to existing property.”
According to the Urban Development Institute of Australia (South Australia), the level of first home buyers in South Australia had dropped by 30 per cent in the past year.
“These people need assistance,” said UDIA (SA) Executive Director Terry Walsh.
“Why is it that a house valued at $400,000 attracts stamp duty payable to the Government resulting in an extra payment of $32,000 in interest over the life of the loan? Who benefits from this?
“Stamp duty discourages South Australians from buying and selling property and is a barrier to older people downsizing from the family home. We want more people of all ages to buy houses that suit their needs.”
Mr Summers, who has been campaigning against stamp duty for years with AVJennings, believed the State Governments were well aware of the impact of stamp duty on affordability.
“If you look at initiatives by state governments in terms of stamp duty relief for first home buyers that have been prevalent in recent times, it suggests that even the collectors of those taxes see it as having a significant impact on affordability and the need to provide relief.”
Mr Summers suggested that any tax reforms should be focused on a number of initiatives, not just removing stamp duty.
“Other significant influences on affordability have been changes to the industry such as infrastructure charges and the cost of regulation.
Equally important has been the lack of adequate, appropriately serviced land and infrastructure.
Some aspects of change over the last decade may have been correct, some arguably not, but the impact is certainly not well enough understood.
It is only through an informed and rational debate that proper reform can occur,” he said.
“Stamp duty would seem an obvious starting point for such reform.
For state governments, it is an unreliable and volatile revenue stream which then puts pressure on the supply of services and long term planning.
For buyers, it is a barrier in terms of housing needs and mobility and this then also impacts on the efficiency of the economy.
There must be better options.”