Stamping out stamp duty

In another insightful commentary leading property commentator Michael Matusik gave his personal spin on some mooted changes in Queensland and who this affects the sunshine state’s property markets. He said:

Ronald Reagan was right, the nine most terrifying words in the English language are, “I’m from the government and I’m here to help.”  Queensland’s boy wonder, Treasurer Andrew Fraser, again proved this maxim to be correct, babbling on about getting rid of stamp duty – known now as transfer duty (as if that somehow eases the pain) – at a CEDA conference in Brisbane late last month.

Yes, Andrew, stamp – oops transfer – duty is a relic and an inefficient tax and it should have been stamped out (pun intended) a decade ago, as per the original plan, upon the introduction of the GST.  But Queensland Labor and all other state and territory governments, for that matter, are hooked on the revenue.  Over $12 billion in receipts over the last five years alone isn’t small bickies.

The Henry Tax Review was correct if you ask me, to recommend the removal of stamp duties in favour of increased land tax.  Stamp duties are borne by the purchaser – at the time when they can often least afford it – whilst land tax is paid on an annual basis.  Now, without getting into the sometimes poor way that land tax is calculated, the change from stamp duties to land tax would result in a much better system.

But such reform involves more than one level of government, and our federal elected representatives, and on both sides of the house, don’t strike me as reformists – in fact, quite the opposite.

So, Andrew, by making such comments (and you shouldn’t be surprised that they got you a front page headline in last weekend’s Sunday Mail), you have done two things:  Announced that your government is already in election mode and further stuffed – the already stuffed – residential market in Queensland.

You have announced another reason (bogus as it maybe) why potential purchasers should hold off from buying Queensland real estate.  Sales volumes across much of the state are already in the toilet, with just 38,900 settled sales in Brisbane, for example, during 2010.  This is down from 52,000 in 2009 and less than half that traded during the 2003 market peak.  The ten year average is around 54,000 sales per annum across Brisbane.  Post flood, our forecast is for around 30,000 sales during calendar 2011.  But your latest comments could drop that even further.  A warm thanks, indeed.

Something seriously needs to be done about the taxes and charges on property transactions and development in this country.  When factoring in both buyer and seller costs, Australia has the fourth highest property taxes in the world at just under 14% of the property’s value.  Only Belgium, France and Greece are higher.  Total property taxes average around 8% across the western world and are under 5% in the USA, New Zealand and the UK.

If we aren’t going to remove stamp duty on property sales, then at least we can make it uniform across the country.  An investor paying the median price for a property in each state/territory can pay between $10,000 and $27,000 in stamp duties, depending on location.  The same applies for owner residents and fluctuations for first home buyers, which are the greatest of all, with first timers in Queensland, Western Australia and Northern Territory paying virtually nothing at all, whilst the transfer duty for first timers can be as high as $23,000 for an averaged priced home in Melbourne and close to $21,000 in Canberra.

The removal or even reduction in stamp duties will help support the real estate industry.  More people will buy and sell.  They will move more often and help improve labour inefficiencies and, in theory at least, productivity.  It will have little impact on end prices and is very unlikely to improve affordability.  A property’s value isn’t determined by the market, valuers or the bank based on what duty its sale attracts.  More sales over the longer term usually lead to higher prices.  An astute change in how we tax property transactions could lead to more government revenue, again over the long haul.

Andrew, the Queensland property market is very delicately poised at present.  Jawboning or worse still, waxing lyrical about changes to stamp duties is already having a negative impact on the housing market.  Several developer clients in the course of normal business over the last couple of days have mentioned that leads (few that they had) have gone cold since Sunday’s front page headline.  Some sales are also in jeopardy.  Until you are actually ready to implement such a change, no further comments regarding stamp duty are required.

“I’m from the government and I’m here to help.”  Not!

This report is republished with permission of Matusik Property Insights.

Source: Matusik Missive


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