By Michael Yardney May 25, 2020

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Will stamp duty really be abolished?

Property Investment
Will stamp duty really be abolished?

With the stamp duty ‘rivers of gold’ now turning into rivers of mud, state governments are looking for a more broadly-based tax system to keep their budgets afloat.

One suggestion up for debate is the prospect of nixing stamp duty in favour of broader taxes that will continue to drive income for them, year after year.

Whilst ongoing, secure funding is obviously essential to keep our state budgets healthy, I believe a broader tax policy can only be bad news for those who already own property and have already (quite literally) “paid their dues”.

I’ll explain why in a moment – but first, why has talk of abolishing stamp duty started to gain traction in the midst of a pandemic?

And what does it mean for you?

Why is stamp duty in the news?

According to the Reserve Bank Governor Phillip Lowe, in his view, the best way for the nation to recover from this once in a century crisis is for governments to underwrite a business-led recovery.

He’s suggesting that the way forward is to embrace the Henry Tax Review and adopt “long overdue tax reforms”, with tax reform across three pillars: income generation, consumption and land.

If I read between the lines this is actually a secret code for cutting business taxes, increasing the GST, and abandoning state-based property stamp duties in favour of land tax.

It’s the latter that I’m going to discuss in this article because in the short term, an adapted tax policy that looks at removing stamp duty may seem like a good idea.

In reality, it could distort markets, increase the financial burden on everyday Australians and it may even lead to an increase in property prices.

There’s one reason and one reason only behind these suggested reforms: to increase the tax base.

Broadening the tax base would take away the state and territory governments’ exposure to the cycles of the property market.

You see, during the booming property years, state governments have benefitted from substantial stamp duty revenues.

They love the “rivers of gold” that flow during the boom times, but during the downtimes, there’s less certainty for their budgets, as stamp duty comprises their main income source.

In fact, while stamp duty remains a large source of revenue for all state and territory governments, it accounts for a whopping 30 per cent of the self-raised taxes of NSW, Victoria and Queensland.

Now, I’m no fan of stamp duty – as a long-term property investor and landlord, I’ve paid my fair share of it over the years, and it’s never fun handing over a cheque worth tens of thousands of dollars to the State Revenue Office.

But it boils down to this…

Stamp duty is a discretionary tax

If you don’t buy property, you don’t pay it.

It may not be fun, but it is fair.

Now, rather than a discretionary tax, every single person in Australia is going to end up paying a little extra for broader taxes that bite at everyone’s budget.

Furthermore, if you take stamp duty away, you’re going to take away a massive barrier to entry and increase demand for property.

This could push property prices higher and create an artificial property bubble as demand soars.

One such proposal from The Property Council’s even goes as far as to call for an expensive ‘New Home Boost’, which would see buyers of brand new homes pocket a $50,000 sweetener, whilst also avoiding paying stamp duty.

Their proposal asks for:

Buyers of newly built homes to get a $50,000 grant from the federal government;
Broad-based tax reforms that include the axing of state Stamp Duty taxes;
Widening the GST in the medium term to include fresh food, health and education – once you widen this, I’m not sure how you could reel it back in again?

The federal government has already pledged over $300 billion in an effort to pull Australia out of this pandemic-led economic crisis.

Where the government could possibility find the funding to pay for $50,000 per new home is beyond me.

All of which leads to the question…

How likely is it that this stamp duty reform is set to gain momentum?

Well, federal Treasurer Josh Frydenberg confirmed that tax reform is being considered in his ministerial statement on the economy.

But so are a whole host of other economy-boosting measures, including increased infrastructure spending, skills programs and industrial relations reforms.

In these uncertain times, nothing can be discounted entirely.

In my view, it’s a very brave politician who would introduce such a seismic change to Australia’s taxation system right now.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

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About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.

2 comments

Jeff 2020-05-26 07:15:35

1 reply

Would you like to share your thoughts?

Jeff May 26, 2020

GST is by far the most efficient and fair way of collecting tax that I have seen.
In NZ it has gone from 10% to 12.5% to 15% along with a corresponding reduction in income tax. This is because it works so well and it is applied to everything.
With cash going the way of the dinosaurs it is also becoming a tax that is difficult to dodge.
The best and fairest things with the way this works in NZ is
1 – you have more disposable income initially because of lower income tax so those on a lower income have more to spend on necessities.
2 – if you are saving for a home or other large item your savings grow faster as they are less taxed
3 – people with large incomes spending on expensive luxuries get taxed at the point of sale therefore paying a larger amount of tax.
Stamp duties, land taxes, luxury vehicle taxes etc etc etc……… are so out of date and prohibitive in the way they try to tax the wealthy that they hurt people who are trying to make their way up the ladder more than they effect the wealthy themselves as the wealthy know how to offset most of these taxes through “good accounting”.
GST is so efficient because it taxes everything at the point of sale and is unavoidable.
It’s fair because everyone is paying the same rate but the more you spend the more you pay.
It could be fairly distributed by a percentage going to the state it was spent in.
Do away with all the ineffective, antiquated, and ridiculously complex taxes that are holding back the Australian economy. Lower company taxes to allow more employment, lower income taxes, and increase the GST because it’s uncomplicated and incredibly efficient.
The system is already in place it just needs to be cleaned up and perfected.

1 reply Reply

Michael Yardney May 26, 2020

Thanks for the detailed comment – I agree Jeff

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