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.
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
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.