The economic recovery from coronavirus is sure to be long and painful.
New forecasts predict the coronavirus crisis will punch a $360 billion hole in the Federal Budget but, while most economists argue the Government should not be trying to rush budget repair, many say major tax reform is urgently needed to assist the recovery.
Deloitte Access Economics predicts the economy will still be suffering a "hangover from the traumas of the moment" for years to come.
And it’s not only a problem for Federal Government, our State Governments' budgets are also being hit hard.
Most experts agree economic recovery will have to involve some form tax reform, and many are suggesting this could include abolishing state stamp duties and raising the GST.
Watch as I chat with Australia’s leading housing economist Dr Andrew Wilson, chief economist of My Housing Market
Watch as we discuss:
According to RBA Governor Philip Lowe, the best way for the nation to recover from this once-in-a-century economic crisis is for "governments to underwrite a business-led revival and do so by embracing the Henry tax review and adopt overdue reforms."
Lowe's call to overhaul taxing "income generation, consumption and land" is secret code for
- Cutting business tax,
- Increasing the goods and services tax and
- Abandoning state-based property stamp duties in favour of land tax.
I’ve even heard a few pundits suggest we remove Negative Gearing.
Stamp duty, which must be paid as a lump sum on a property purchase, has long been criticised by economists as one of the most economically damaging and least efficient taxes, largely because it provides a disincentive to move to a more suitable home or location.
The tax has been a major source of state revenues during property booms but is forecast to fall because of the coronavirus shutdowns.
Stamp duty is still the biggest source of revenue for the states, raising about $21 billion a year, including $7.5 billion for NSW and $6 billion for Victoria.
Despite this, New South Wales Treasurer Dominic Perrottet and Victorian Treasurer Tim Pallas have indicated stamp duty on property purchases in their states could be scrapped.
But be wary...
Our state governments are looking to earn more tax income, not less.
So what some are proposing is to remove the discretionary tax of stamp duty, which only gets paid if you choose to buy a property, and to broaden land tax which then could or would affect all property owners - home owners as well as property investors.
Sure it would most likely be a progressive system with owners of lower valued properties paying little or no tax, but in my mind land tax is really a wealth tax.
If our State Governments keep talking about this, be prepared for a huge backlash similar to what occurred when the Labour Party talked about changes to the franking system which would have affected many self funded retirees as well as the many Australians who own shares.
I can't the average Australian excited about the prospect of paying Land Tax on their home every year.
As I said Land Tax = Wealth Tax
And watch out for unintended consequences.
Of course if future homebuyers don't have to budget for stamp duty, this extra money will be added to their deposits meaning they will be able to afford more expensive properties.
This will only push our property values, not make properties more affordable as is hoped by some lobbyists.
Home Seller Growth Eases
The recent post-Easter revival in home sellers has proved to be short-lived with growth levels easing over recent days.
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The National Newly Listed Homes Index - exclusive to My Housing Market that tracks the number of homes newly listed for sale over the past week on a daily basis - reports that the 67.43 result recorded for Sunday May 10 was nearly 5 points lower than the previous Sunday with an early declining trend emerging since mid-week.
Although recent growth levels have eased, the Index is now 18.9% lower than recorded over the same time last year compared to the 27.2% differential reported a week ago.
This improvement however is due to the impact on new seller sentiment of the Federal Election campaign that was formally underway at this time last year.
Despite the recent decline in new seller growth levels, the outlook for the housing market has improved with further easing of lockdown restrictions.
While the number of properties listed for sale has decreases, so have the number of property transactions occurring inMelbourne
Not surprisingly, very few properties were sold at auction in Melbourne, but this may now change as restrictions on opening your options have been loosened.
The Sydney property market has a relatively stronger week than Melbourne
A good sign for our property markets is the recently released Westpac Consumer Sentiment Index which showed an impressive recovery in confidence showing Australians are heartened by our success in containing the coronavirus.
In fact this turnaround marks the biggest monthly gain in the index since the survey began 50 years ago, but of course overall consumer confidence is still comparatively weak by historical standards.
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