Property related taxes have remained the largest source of revenue for state and local governments and despite weaker market conditions over the 2011/12 financial year, property related taxes rose to new highs.
Throughout the 2011/12 financial year, $33.515 billion in property related taxes were collected by state and local governments. The $33.515 billion in taxation equated to 46.0% of all taxation revenue for state and local governments over the year, down from 47.2% over the 2010/11 financial year.
The total amount of property related taxes rose by 0.9% over the financial year and although it represents a further increase in the tax take, it is the smallest annual change in revenue since revenue fell -10.4% over the 2008/09 financial year.
Taxation revenue increased throughout the 2011/12 financial year, despite the fact that the country’s largest single asset class (residential housing) recorded much weaker conditions. Our data shows that the total value of dwelling sales across the country fell by -6.1% over the financial year.
Data also shows that combined capital city home values fell by -3.6% over the year and the annual number of home sales across the country was -6.1% lower. Given these figures, it is clear there was only one way state and local governments increased their tax revenue, by raising tax rates.
Focussing on property related tax revenues by category over the 2011/12 financial year shows that the two largest sources of revenue are municipal rates (39.6%) and stamp duties on conveyances (34.8%).
Between them, these two categories accounted for almost 75% (74.4%) of all property related taxes collected. If you include the third largest category, land tax, these three categories account for 92.6% of all property related tax revenue. Over the 2011/12 financial year, municipal rates revenue rose by 6.1% and land tax revenue rose by 1.6% while stamp duty revenue fell by -4.7%.
Stamp duty is one of the more controversial taxes on property and as you can see it is a cash cow for state and local governments. It is widely regarded as an inefficient form of taxation which acts as a disincentive for home owners to transact homes on a more regular basis. There have been many calls to change it to a broad-based land tax however, that would obviously win very few votes at an election.
With home values and transactions falling throughout the financial year, it is clear that stamp duty revenue has felt the full brunt of the slowdown. At a national level, total stamp duty revenue has fallen by -4.7% which is fairly closely aligned with the -6.1% fall in home sales across the country.
It is interesting to note that stamp duty revenue over the 2011/12 financial year was -18.4% lower than the peak recorded in 2007/08 clearly highlighting the impact of reduced sales volumes on this important government revenue stream.
Stamp duty revenue fell across each state over the 2011/12 financial year except for Queensland where stamp duty collection rose 4.7% and in Western Australia where it increased by 29.0%. Over the year, the number of house and unit sales increased by 4.0% in Queensland and by 10.9% in Western Australia.
Municipal rates are the largest source of taxation revenue for states and local governments and they rose by 6.1% over the year, with a rise recorded across every state and territory. Rates revenue is increased through either lifting the amount of rates collected or by development of new properties. Land tax is the third largest source of revenue and it increased by 1.6% at a national level over the year. Land tax rose over the year in each state except for Queensland where it fell by -2.8%.
Property tax is clearly the most important source of revenue for state and local governments across the country. Therefore it is important for these governments to find ways to grow this revenue over time or look for other ways to create revenue. Since the end of last financial year we have seen an increase in sales activity across the national housing market.
As a result, stamp duty revenue is likely to increase over the next financial year however, the increase is unlikely to be significant. Overall we would expect that at a national level property related tax revenue will increase over the 2012/13 financial year however, the rate of growth is once again likely to be quite low.