REIWA: replace stamp duty with land tax

ScreenHunter_2162 Apr. 23 13.54

By David Collyer, cross-posted from Prosper

Yesterday REIWA president David Airey issued a call in the West Australian newspaper for the WA government to abandon Stamp Duty and fund this by removing the many wheezes from the tattered State Land Tax. Hooray!

Airey says:

“It’s time to recognise that stamp duty on property as a means to raise revenue is clumsy, inefficient and out-dated.

“REIWA calls on the Government to have a serious look at broadening the land tax base to all property owners with a view to abolishing stamp duty altogether.

“The benefit to property owners is the simplicity of a modest, annual land tax as opposed to “bill shock”, when hit with a huge stamp duty tax in the tens of thousands when they transact.

“In some cases stamp duty is so prohibitive to potential buyers that they stay put, jamming the market and not allowing established homes to flow into the first-homebuyer pool.

“A broad-based land tax was proposed by the Henry tax review in 2010 and has merit.

“It’s time for a mature discussion around this proposal with the aim of creating a long-term plan for a better system of property taxes – one that’s not at the mercy of an anxious treasurer every financial year.

Removing Stamp Duty would do wonders for the flexibility of the property market. Lowering the cost of change would lift labor flexibility and productivity as workers could easily move to where their skills are most highly valued. Families could trade up and down as their circumstances change. Everyone benefits.

Increasing the number of property sales would also increase RE agent activity and income, but transaction costs are dwarfed by the greedy government take and their modest self-interest here is easy to forgive.

The changes to State Land Tax are easy to implement: flatten the rate, remove all exemptions and thresholds, and use the proceeds to strike out a tax that stifles productive activity. If the WA Barnett government embarked on this piece of experimental federalism, their property market would enjoy an impressive turn of speed. Arthritic eastern states, take note.

Before we get too excited by his long-sightedness, the REIWA also calls for another flabby First Home Vendor’s Boost – economic poison that inflates the cost of land everywhere for everyone. Sorry, Mr Airey, that’s a terrible idea. We need to end the era of sweeping government manipulation of the property market.

I cannot locate Airey’s West Australian article on-line. Attached is a PDF of the print original.

42 Responses to “ “REIWA: replace stamp duty with land tax”

  1. Jackson says:

    Tried to link to this yesterday, I nearly fell off my unicycle when I read it in the West.

  2. Tassie Tom says:

    I agree with all of this discussion, especially “Flatten the rate of land tax”.

    A progressive rate of land tax is one of the most ridiculous things out there.

    Stamp duty is the second most stupid tax, behind payroll tax. Now, if anything can be done about this …..

    • Tassie, Stamp Duty and Payroll Taxes are certainly vile repugnant behavior-distorting tax bases, but mineral royalties are even worse. 2D’s advocacy of them is evidence of their profound disutility.

      • Tassie Tom says:

        I don’t mind royalties in principle, it’s just wrong that they are revenue-based instead of profit-based and that they are different for each resource.

        (I was a big fan of the original RSPT – call me red but I think our mines should be effectively government joint ventures.)

        Mining is different. If my business plan was to exploit a sandstone resource known as Uluru to produce sandstone blocks for building and landscaping, there would be outrage, even despite the country sharing my profits via my 30% company tax.

        This is an extreme example, but every hill or valley in Australia is important to someone or something, and once the resources are taken they are gone forever.

      • Resource rents are about the most efficient and equitable tax going around.

    • Mik says:

      So how would all developers manage this? would they have to pay the land tax on the value they bought the land before development, or would they pay the land tax on the developed land price, I would love to see it on the developed land price, and hopefully this would stop developers land banking developed lots (ie stage releases) and the longer they hold onto the more expensive land they more tax they will pay.

  3. doctorX says:

    First they taxed people upfront when they purchased a home and now they want to continue taxing them forever. Land tax is just different name for a rent that people pay on home they “own”.

    stamp duty discourages speculation much more than land tax.

    • Pig’s Bum!

      SD makes trading or changing more difficult. SLT stings only those holding underused land (speculators). A land tax does not affect people’s homes – the structure – it is on the dirt underneath. It is the single least distortionary tax available, alongside PRRT and RSPT. Embrace it.

      • doctorX says:

        For an average Australian property speculator who holds property for less than 5 years, land tax vs. stamp duty will mean less tax and higher profit (0.3% over 5 years vs. 3.5% upfront). In addition, removal of stamp duty it will allow more people with less cash to jump into property speculation market while existing speculators will be able to buy more properties with the same cash.

      • Land tax would induce more supply by reducing land banking, vacancy and vagrancy. It also facilitates a more efficient use of the housing stock, since people are incentivised to move to properties that best suit their needs.

        It is a tax against land speculation, not a tax in favour of speculation.

      • willy_nilly says:

        Doc
        Which is why we need the full CGT tax on any property, inc PPOR, sold under 10 years, like the Germans do. Exemptions for work, health or babies etc.

      • doctorX says:

        @ UE

        I disagree, holding (banking) unused land for almost 10 years would be cheaper under new land tax scenario than under current stamp duty. In addition, removal of stamp duty will enable more people to speculate and pay more.

        Removal of stamp duty will have much greater effect on the market than FHBG few years ago because everyone will be eligible to “get the money”. With LVR around 90% removal of 3-4% stamp duty will enable people to borrow 30-40% more. Prices would skyrocket.It will also reduce investment risk (by reducing trading cost) so people would be more likely to enter speculative market (with the idea that they can sell at any time with very little money lost).

        USA is good case that shows how broad land tax is not good in preventing speculation – it’s quite the opposite.

      • doctorX says:

        @ willy_nilly

        not only full CGT but additional speculative tax (something like 90%) should be introduced on all sales under 10 years (as they do in Germany) and with almost no exceptions. Only extreme unpredictable cases, like health issues, should be excepted; babies and work related events should be planed before buying anything. This tax would make homes so affordable that upgrading or moving would not cost much anyway.

        ultimately, speculative tax would not cost people, it would just prevent them form making money (babies should be source of profit anyway)

      • Escobar says:

        UE

        “Land tax would induce more supply by reducing land banking, vacancy and vagrancy”

        How is this accomplished?

        Do you mean the proposed “new” land tax would be punitive? If so why not make these types of property subject to higher land tax now.

        If land tax is merely a spread of stamp duty over (say) the average period a property is held, how would that dissuade speculative holding.

      • drsmithy says:

        [...] babies and work related events should be planed before buying anything.

        You can’t possibly be serious.

      • doctorX says:

        @ drsmithy

        Why? Upgrading as a result of birth of child is so unusual around the world. It’s only happening in UK and her. In other countries young people buy place large enough for the family they plan to have (i.e. three bedroom place before babies are born). Property ladder is a British invention that rest of the world laughs at.

        I guess people in these countries know math so they are well aware that it’s not worth buying a home if you will be selling it in less than 5 years or so. Outside of few short periods, hitoricaly it was always much cheaper to rent and buy large enough place few years later than buying small place, sell and than buy another.

        and jobs, that is relatively easy to plan but for some reason we like changing jobs even faster than houses – why? my guess is that we don’t like being productive, we like spending months to learn about new job and than leave – just to make sure we do nothing productive in our lives

      • Shhhh! Don’t tell the people that. They wont buy the crummy stuff, boost prices all the way up the property ladder and then face a fresh round of transaction costs after the idle dream is destroyed. This is their grand civic purpose: to enrich the conga line of rent-seekers ranged between young adults and the independence of ownership.

      • drsmithy says:

        Why?

        Because the idea that in today’s world someone in their early 20s can reasonably predict where their work and personal life will lead them over the following decade or two is laughable.

        I’ve moved countries three times and major cities within Australia twice over the last ten years. Only one of those was fully voluntary, but even three years before it happened I wouldn’t have expected it.

        It’s not the 1950s anymore. People no longer stay within a stone’s throw of the place they were born and they no longer stay with the same employer for 10+ years at a time. Further, these are hardly phenomenon unique to Australia: nearly all – certainly all those in “professional” jobs – my Swiss and American friends have also changed employers, cities, states, and sometimes even countries multiple times in the last 10-15 years. A large chunk have had at least one job change triggered by an employer either folding completely, or dramatically restructured.

        Changing jobs “frequently” has nothing to do with avoiding productivity. People do it because employers generally no longer provide internal career paths or decent pay increases with increasing responsibilities – so the only way to move ahead in your profession and increase your income is to move to another job (or play the “I’ve got a better offer elsewhere” card – but all that does it start a stopwatch on being fired).

        Your statements are out of touch with contemporary reality. Have you been asleep for the last thirty-odd years and missed the global property bubbles and rise of neoliberalism with its accompanying loss of job security, or are you just a wealthy boomer employed in the public service who doesn’t have to worry about these things ?

    • Rusty Penny says:

      Land is still a commonwealth, owning it still allows the entity full agency over its use.

      It makes perfect sense to have a persons tax obligation based on the commonwealth they monopolise, rather than their level of physical exertion.

      If that ‘rent’ pays for all our services, and also signals for already rich people their privilege has to be maintained by continuous value, rather than hoarded away in a tax free asset, then that is a good place to be.

    • Pfh007 says:

      doctorX,

      Any introduction of land tax should be slow to limit the issues you raise.

      A good starting point is to introduce it on all new subdivisions as it would lower the cost of the lots and no one would be caught be surprise. Whether the land bankers deserve any compensation for the lower sales price on lots that come with a LVT obligation is another issue.

      Deceased estate is another point of introduction.

      A voluntary approach may be best – here is one

      http://www.systemicfiscalreform.org/Home/location-value-covenants

    • [email protected] says:

      Totally agree with you, doctorX. Heaven forbid imposing or taking away any tax that has the potential to drive up speculation. As it is, the young Aussies are priced out of the market by overspeculation both from local and overseas speculators. The real estate industry is driven by their profits, NOT the interests of young Aussies who can barely afford a first home.

    • [email protected] says:

      Totally agree with you, doctorX. Heaven forbid imposing or taking away any tax that drives speculation. As it is, the young Aussies are priced out of the market by overspeculation both from local and overseas speculators. The real estate industry is driven by their profits, NOT the interests of young Aussies who can barely afford a first home.

  4. The Patrician says:

    Swapping SD for a broadbased LVT is on the “fix the budget” table in QLD.

    Let’s see if the REIQ follow suit and get behind it like their WA bretheren?

    One sheep heads for the open gate and you’ll get knocked down in the stampede

    Competitive federalism is a wonderful thing

  5. squirell says:

    i wonder if this would make moving to WA more attractive. If it did, then the other states might follow suit to negate the interstate advantage.

    • Neville Gearless says:

      More attractive? WA has been leading population growth by a country mile. 3.5% growth last year, which counteracted the state’s effort to flood the market with new land releases.

      WA going it alone with LT might not result in downward price pressure if it provokes another stampede.

      • Rusty Penny says:

        The capex tsunami is drying up, there’ll be a stampede out soon enough.

      • Neville Gearless says:

        Nice in theory, but its never happened. There been plenty of boom/busts before. Punters stay put, the bastards..

      • Rusty Penny says:

        Never had this many 457′s before either.

        or Kiwi’s

      • Neville Gearless says:

        Still a myth that population deserts WA in a bust. Only 5% work in resource sector. Grown faster than any other state past 40 or 50 years. Lifestyle is the reason.

      • Rusty Penny says:

        I live in Perth, the lifestyle isn’t that appealing.

      • Neville Gearless says:

        Well that doesn’t make sense. Lifestyle is what you create for yourself. Perth just has the weather and the water, so for example, it has the most boats per head in Aust. Are other examples too.

      • drsmithy says:

        Still a myth that population deserts WA in a bust. Only 5% work in resource sector. Grown faster than any other state past 40 or 50 years. Lifestyle is the reason.

        [...]

        Lifestyle is what you create for yourself.

        Make your mind up. Has it grown because of the lifestyle it offers, or is lifestyle something you create regardless of where you are ?

      • Neville Gearless says:

        drsmithy reckons
        “Make your mind up. Has it grown because of the lifestyle it offers, or is lifestyle something you create regardless of where you are ?”

        Gee, I’d have trouble continuing my boating lifestyle if I was living in the Antarctic. Guess that means the location makes a difference to what i can create.

      • drsmithy says:

        Gee, I’d have trouble continuing my boating lifestyle if I was living in the Antarctic. Guess that means the location makes a difference to what i can create.

        Nearly every major population centre in the country is on the coast !

    • Bryan Kavanagh says:

      I don’t think that’s stretching it, Squirell, to say it would have a slight stimulatory affect. Particularly with reformed land taxes that are not Robin Hoodish, as they are at present with increased rates in the dollar for highr-valued lands. Owners of more valuable land pay more anyhow, so why also inflict them with higher rates?

      Yes, other states would be inclined to follow, just as with Joh Bjelke Petersen’s abolition of probate duty. All the other states, and even the commonwealth government, followed Queensland. As a valuer with the Commonwealth government at the time, I was pleased to see death duties go. I felt like a ghoul turning up a few months after the death of a loved one to value the survivor’s assets for federal estate duty. (And companies don’t die, of course.) Much better a nibble with reformed land taxes as we go IMO.

  6. Pat says:

    I tend to think a land tax on the unimproved value of land is quite regressive. Why should someone with a $1.5 million dollar house next to a $700K house pay the same tax?

    In order to make a property tax progressive the improved value of the land must be taken into account.

    • Turnitup says:

      So I gotta pay more tax because I spend my money on improving my backyard (in turn creating jobs)? Huh?

      On the larger issue, I agree that the current system doesn’t encourage efficient use of land, which is pretty stoopid. Why would Granny move out of her 4 bedroom home to downsize when she’s going to be stung 35k in stamp duty? She should be given a gold medal for doing so, not be taxed 6 months average salary.

      • Pfh007 says:

        Combine those ideas.

        If people were encouraged to build a couple of granny flats in their backyards (beats that plunge pool you are planning to keep the kids quiet) and stamp duty is removed we could solve a range of issues.

        1. Child minding
        2. Home grown veggies
        3. Loneliness of elders whose families don’t live close
        4. unproductive backyards

        Etc.

      • Pat says:

        Yes, this is exactly how property tax is levied in many jurisdictions, based on the assessed value of the house and land – those who can afford it pay more.

      • Pat says:

        Consider a simple example:

        My house is worth $500K of which the land comprises $200K.

        Policy A taxes the improved value at a rate of 1%.

        $500K @ 1% = $5K per year in property tax.

        Policy B only taxes the land component and so requires a higher rate of 2.5% to achieve the same revenue.

        $200K @ 2.5 % = $5K per year in land tax.

        After 2 years the land appreciates by $10K. Assume no modifications to the house / no change in value.

        Policy A – $510K @ 1% = $5100 tax per year
        Policy B – $210K @ 2.5% = $5250 tax per year.

        Hardly progressive. By taxing only the land those who either can’t afford it to or choose not to spend big on home renovation are now faced with unjustified larger raises in their tax.

  7. tmarsh says:

    So, I have to pay annual land tax. So, really, there’s no concept of private property rights (see, onshore petroleum act) and ownership of land in Australia.

    If I have 10 acres and am just barely scraping by, do I have to sell if I can’t pay the tax?

    Is there an income threshold?

    So many questions.

    FWIW, I bought under a NSW Stamp exemption and paid no stamp.