NSW Labor offers the bubble fresh drinks

By David Collyer from Prosper Australia

In the second leaders debate of the NSW election campaign televised last night, ALP opposition leader Luke Foley proposed buyers be allowed to defer Stamp Duty, allegedly to ‘help improve housing affordability’.

This idea must be condemned. Either Mr Foley is taking NSW voters for fools or is economically illiterate.

Stamp Duty is used by government because the person who writes the cheque is not the one who pays the tax. They quite like this confusion of responsibility and accountability.

In a property transaction, the statutory incidence of SD falls on the buyer – the law says they must pay it. However, the economic incidence falls on the vendor – it comes straight out of their pocket.

The sale of a house worth $550k incurs a SD liability of around $20k. How much would the house sell for in the same market without SD? If you guessed $570, you would be correct.

If SD payment is to be made in installments or deferred, the contingent liability becomes attached to the asset. Settlement after sale gives the vendor a clean break, renouncing all and any interest in the asset and clearing all future liabilities. With this single gesture, the economic incidence for SD just shifted back to the buyer.

The housing market will immediately re-price houses as the deferred SD, not being required at settlement, can be disregarded.

If Luke Foley’s proposal is adopted, NSW property prices will be abruptly lifted by about 5.5 per cent, the burden placed squarely on buyers and housing affordability worsened.

Sydney’s housing market is white-hot. Price records are being broken and broken again as an army of ‘investors’ scramble to become rentiers in the worst place and the worst time in human history to make the leap. The trend in the investor share of Sydney mortgages is parabolic. That market doesn’t need fresh stimulus.

ScreenHunter_6436 Mar. 09 06.42

Stamp Duty is a very bad tax. It traps people in and out of housing. It falls most heavily on those who change where they live. Those forced to sell by hardship – divorce, unemployment, financial pressures – have the harm compounded by stamp duty.

If Mr Foley genuinely wanted to help NSW citizens through tax reform, he would abolish stamp duty and fund this by removing the principal place of residence exemption from State Land Tax. His proposal last night is merely another gift to vendors.

Comments

  1. the dumb knows no bounds. First “use your super” and now this.

    Are there any other can kicking mechanisms left in the toolbox? Just how bad can this bubble get?

    • There’s one – scrap the FIRB rules as they are easily flouted; and if they become blatantly transparent, they jeopardise ‘other’ investment in your country ( the $39 mio ‘forced’ sale).
      Frankly, in a globalised world I’m surprised that you guys still pretend you can enforce foreign ownership rules – but their ‘official’ scrapping will make the last addition to your property punchbowl….

    • This just illustrates that Labor is toxic for Australian society.

      BUT they know how to win elections and stay in power. And it isn’t through good policy. It is through deception, spin, and pork.

      Unfortunately the true interests of the community come very second to the interests of power for the unions who control the ALP.

      • I hear ya, we all should always be voting for Liberal as they have everyone’s best interests at heart! Why anyone would vote for the commie Labor and Green parties I will never understand, they are totally against profit maximisation unless you pay them for it. Gotta love our Libs, they are the best!! Mwahhh…

  2. SD does not fall most heavily on those who change where they live (there are comparably very few of them and they can always rent if they want). With population so concentrated, only one city in each state, and short term jobs Australians don’t even have where to move.

    SD hits the most people who trade homes for profit – speculators.

    • Try explaining your twisted logic to a young growing family that needs to move to a larger home (e.g. from a two bedroom apartment to a house), or an empty nester couple that wants to downsize.

      SD is an unfair tax on moving – pure and simply. It also discourages labour mobility.

      • OK let’s go through your “straight logic”:

        First you said that any removal of SD would be offset by price increase so FHB will not get anything out of SD removal but will have to pay land tax forever – clearly a moral hazard

        Than you argued that SD is unfair because of few people (relatively small percentage of population) who have to upgrade or downgrade completely ignoring the fact that with SD removal all population would be forced to pay land tax, even those who paid upgrade/downgrade SD in past – clearly a moral hazard

        Than you think that is more fair to impose “unfair tax” onto everyone (large number of low income people who cannot afford it) so that minority who want to upgrade or downgrade can get it easier – clearly not fair

        replacement of SD with land tax would force many to sell and you think that is fair to force people out of their homes and suburbs?

        At the same time, removal of SD would benefit short term property speculators who would be able to trade with low cost. That would allow them to make bigger profits and make them more willing to risk making bubbles even bigger and busts more catastrophic. A system that rewards speculators (via bigger profits) and punishes everyone else (via property bubble recessions) – clearly a moral hazard

        With low fertility rates and growing average homes sizes there will be fewer genuine upgrades (people who need more room to house all the family members) and more financial upgraders (people who want to live in more fancy and expensive homes or want to benefit from unfair tax system – no means testing on PPOR). With current taxation laws there is huge incentive for older people not to downgrade so SD removal would make no difference.

        With manufacturing jobs being replaced with services, and development of IT technologies there will be less and less people whose jobs will be location specific so less people with genuine need to move due to job reasons (except few well paid professional jobs, other jobs are and it will be even more equally distributed)

        And you still think that SD replacement (that benefits shrinking small minority) with land tax that affects everyone especially growing population of poor people is ethical or economically sound?

      • doctor X – we already have land tax – we call it council rates. Whether or not it’s a good thing to increase those rates to cover the cost of infrastructure and take the pressure off developer contributions and stamp duty is a very broad subject that no one can answer in a paragraph, but it wouldn’t be a new tax, just the same level of taxes collected in a different manner.

      • @DocX

        Currently SD is used to fund infrastructure. Whether you like it or not, this infrastructure is enjoyed by everyone but it funded through the few transactions that happen.

        For people like myself, and there are many others who have spent on average about 4 years in a city it is a big hurdle to buying a place. It is these people that are funding the bulk of that spending that is enjoyed by all.

        There is no moral hazard, the moral hazard is the current model.

      • @PF

        council rates are not taxes, councils are “businesses” with no right to impose taxes, they are only allowed to charge for services they provide

        @ff

        fair can only be defined in relations to other people, in this case large majority of other people paid SD so forcing them now to pay land tax as well would be unfair compared to people who had or will have to pay only one of them

      • fair can only be defined in relations to other people, in this case large majority of other people paid SD so forcing them now to pay land tax as well would be unfair compared to people who had or will have to pay only one of them

        That’s like I paid taxes so I am entitled to a pension stupidity.

        Some of that stamp duty was a fraction of what most people are paying now and those people that have paid a fraction and have the value of their housing increase due to the SD paid repeatedly by everyone else are reaping the benefits.

      • Some of that stamp duty was a fraction of what most people are paying now and those people that have paid a fraction and have the value of their housing increase due to the SD paid repeatedly by everyone else are reaping the benefits.

        if SD gets removed the people that you described would get 5% more when they sell home – SD removal works well with them

        when I said that it wouldn’t be fair to other people who paid SD I was mostly thinking about who did that just before the law change. It would be so unfair to them.

      • @docx

        Easy to model the depreciation of the SD and give those who have recently bought a discount.

      • what would you consider recently? 2 years, 5 years? 10 years?

        on average Australians trade homes once 7 years – would that mean everyone gets money back?

      • One way that land tax could be introduced is by only imposing it on those that have not paid SD.

    • Another S&R post from doctorX.

      Renting is so much fun and so easy isn’t it doctorX? If they get evicted they can just move and change schools, daycares, after school care, and ask their friends to mind kids at different times and places.
      If this doesn’t work they can just get new friends.

      • What difference would that mean? My comment about renting was only about people who need to move anyway because of other reasons.

        How would lowering tax that makes people move more often help with problems you described? wouldn’t it make those problems worse and more often – maybe high SD is good because prevents parents from doing that

      • You are clutching at straws there doctor. Stamp Duty used to be much smaller and has risen enormously with no justification provided by government.
        Either it was to small, or now it is too large, or both.
        SD does terrible damage to people forced to sell by divorce, illness, unemployment etc.

      • SD used to be small because house prices used to be small – it’s house price that is a problem not SD

  3. I have a mate who is an alcoholic. I phoned him yesterday about 11am, and asked if I could come and visit. He told me he had already started drinking and wouldn’t be sober for anytime except the early afternoon.
    I’ve tried to have a yarn to him, but it falls on deaf ears. How one gets into a mind set to let this happen to them (a multimillionaire btw) is beyond me, but it seems many of our politicians are travelling the same path.This can only end badly, especially when sound reason is discarded.WW

    • The more I think about the place Australia is in and where it is heading to the more I call upon the sad tales of my friends who have lost out to drugs and alcohol.
      Sadly, like a lot of these people, I fear that we won’t be able to change until we hit bottom.

      • Mankind Project – Saving the world one man at a time!

        (Apologisze if this looks like an ad – we are totally non-profit volunteer – matter of fact we pay to do the work. Delete if necessary!)

      • flawse,

        I’ve seen that before.
        Not my thing.

        Though if it helps others and doesn’t take advantage of, or exploit them, I’m all for it.

        Best of luck.

    • Flawse, thanks. When these people get to this stage,you nearly cant assist. There is a mechanism in their brain which locks out reason (as we would see it)
      I’m a heartless bastard, and my call is to let them sort it out themselves. that is only for alcohol, anyone involved with drugs should be shot. WW

  4. NSW Labor IS the bubble. They have long been captured by those that profit from the boom.

    Go on NSW vote them back in.

    Voters is stupid.

    • This policy, as bad as it is will cut electorally.

      Even FHBs will lap it up.

      Labor is in with a real chance when you combine the Abbott factor, the scare campaign, and this.

      I don’t think Baird is cutting through the way he needs to.

      • Baird isn’t cutting through because 2/3 of NSWelshmen are against privitisation.

        His like it or lump it attitude is what cost the Libs Victoria and Queensland.

    • The housing bubble is hardly a partisan issue AJ. If Liberals win we get their flavour of bubble policy shit sandwhich. If Labor wins we get theirs.

      Terrible policy from Labour here but I’m not seeing anything sensible on housing in our major parties.

      The Greens at least mention high prices as an issue and recognse that FHOG just inflates the market but their policy is mostly aspirational than specific solutions. Other thna increasing public housing and improving conditions for renters.

      In Auburn our other option appears to be a local counciller and almost certainly a property speculator. So pretty bleak in the lower house.

  5. Look at us heros with our snide remarks.

    Meanwhile, they’re laughing at our impotent rage.

    • “Look at us heros with our snide remarks.
      Meanwhile, they’re laughing at our impotent rage”

      Timid Tims back — Yes you’re a Hero all right at least in your own imagination: Some comments of yours to back up the “hero” tag from previous posts. If you’re another persona of one of the Stews –too bad.

      “And I’m just the asshole that keyed your porche 🙂

      I hope I find your car one day.

      (And I am personally not above punching an old man in the face.)”

      Hero all right — time to get another personality ?– – – – –

  6. Perhaps this would be a nice segue for NSW to abandon stamp duty and move to land tax?

    Since this seems to be effectively what labor is proposing…

    • Hahaha LMFAO.

      Labor isn’t going there. They are in it to obtain power for them and their union master by WINNING elections. Good policy in the interests of the community is a very very distant second.

      • All major parties exist to win. The parties are a business with leveraged salaries for their executives and huge advertising budgets.

  7. Victoria already has a scheme where home buyers can take three months to pay the stamp duty, but lenders won’t have a bar of it. Lenders have to establish serviceability based on all liabilities at the time of the transaction, so a future liability to repay a stamp duty debt affects serviceability, and as it will be a short term loan it will make a difference.

    In addition lenders want tight security over the property being purchased, they don’t want a possible liability that they would have to pick up if the home buyer defaulted on their stamp duty repayments, with perhaps a question mark over that security.

    The reality is this policy will be completely useless to everyone except the wealthy, who don’t want it.

  8. What is it about NSW. They seem to attract people who are of the worst calibre possible into politics.

    • Baird is quality and very electable.

      We need more like him is politics. Capable and motivated by the needs of the community.

      But he isn’t being helped by Abbott . The Abbott factor will cost a lot of seats for the government

      • As much as I love Abbott he’s doing damage to Baird which is said because he is such a great leader, probably one of our best! The main thing is that he is a Lib so I wouldn’t notice anything bad anyway… LOL!!

      • Blow it out the other one Gramus. Baird is a toxic religious nut job whose sole and only saving grace is that he isn’t part of the hopelessly corrupt NSW Labor party, being in the hopelessly corrupt NSW Liberal party instead.

        I think we’d all be better off if we waited until the election and then just shot everybody who showed up to take their seat in parliament.

  9. Yes very bad policy but this will cut electorally. Politically it speaks directly to a lot of constituencies.

    Although it is terrible for FHBs they will lap it up also.

    This just re enforces how utterly toxic the ALP is for Australia. But that doesn’t mean that they are dumb. Foley is not dumb.

    When you combine policy that cuts (like this), with highly effective attack ads, and the Abbott factor Labor is in with a real chance in NSW.

    • Yeah none of them are dumb. The game is to prop up the bubble and get out with the big pension and or the big wages in the private sector. Have the electorate fighting over fringe rubbish.

      It’s sad what greedy criminals Labor have become though. You’d expect it from the Libs. They’re just following what they’ve always believed in.

  10. Avoid stamp duty by avoiding dutiable transactions (http://is.gd/boycottsd), and encourage others to do the same.

    If it catches on, governments will be forced to replace stamp duty — e.g. by a land tax or capital-gain tax, either of which would be more effective for financing infrastructure by recycling the resultant uplifts in land values.

    The irony is that property owners would be winners because they would get more infrastructure.

  11. If Stamp Duty keeps prices lower than they would otherwise be, then surely the last thing we would want to do is replace it with a land tax.

    Let’s triple stamp duty instead to screw over all those baby boomers. Fixing intergenerational inequities and solving the budget black hole with one simple act – it’s a win/win – right?

    • Banks would factor land tax into their disposable income calculations, as they already do with other associated cost-of-living and property outgoings. So replacing stamp duty with land tax should not push prices up, as long as the change is revenue-neutral.

      But land tax does have the benefit of:
      – not punishing you for moving house
      – helps to break the mindset of house speculation. You want to live in a bigger house, fine. You will pay more land tax on an ongoing basis but if that’s what you need it will be well worth it. But it will reduce the incentive to buy “the biggest house you can afford” simply for financial motives. Also not only will empty-nesters not be slugged for downsizing, there will be a financial incentive to do so (pay less land tax).
      – make government revenue less volatile and more predictable.
      – discourage land-banking
      – encourage property to be developed for its best available use.

      Seems like land tax would solve a lot of society’s problems.

  12. Worst time in history? LOLOL! No it’s not, it’s the best time in history that’s why everyone with half a brain and a stylish hair-do are getting into it now!! With interest rates this low there’s never been a better time to buy!!!

  13. And in other news, Premier Baird said the answer to housing prices was more supply, and his government would boost the supply of land to record levels.

    Will supply be sufficient?

    • No, but it would help.

      We need to curb the demand side as well. And when I say demand, I mean excess demand such as that coming from investors, both local & foreign, and the excessive size of loans that have been available to borrowers for the last decade or so.

      • Then there is an opportunity to address at least (part of) one side of the problem.
        The demand sides is troubling; I almost cry when the use-your-super negligent advice gets aired. Foreign investor component is a secondary factor and already has some momentum. I fear it will .take a crash before more enduring solutions like lvt are possible

    • Will supply be sufficient?

      Prices will fall if supply overwhelms demand at a given price level.

      The opposite has happened for decades. Govts chokes supply (eg zoning) and pokes demand (eg immigration). Even an Internet poster with half a brain can see choked supply and poked demand would eventually cause difficulty in obtaining the item and this would be expressed via price.
      Looks like a duck, walks like a duck, quacks like a duck. Probably is a duck. Ditto shortage.

    • Haha… Hahaha.

      Does he really think the ponzi and the land bankers will let him do that.

      Think I can hear your phone ringing Baird.

  14. Yes, Stamp Duty is a dumb tax.
    Unfair and distortive.

    But I haven’t seen anyone refute the basic premise
    that by removing it, we will pour demand side fuel on the housing price bonfire.

    Catch 22.

      • Well, land tax is not an up-front charge.

        So by replacing an up-front charge (SD) with a back-ended charge (LT) you are still adding to the immediate DEMAND SIDE problem.

        Of course “other reforms” are needed but that should happen regardless.

        The question is how do we transition away from Stamp Duty without adding to the property spike in the short term?

      • @TheJoneses, my thoughts, Land Tax should be added to a persons outgoing expenditures when determining loan value. This should reduce the borrowing amount, and in effect, it should balance out any increase in price.

    • Banks factor costs into their lending models. So although there would be no up-front charge, the bank would lend less because they know that you will be paying land tax on an ongoing basis.

      If anything, LVT would be negative for land prices as it would encourage empty-nesters to downsize, and discourage people from “buying the biggest property they can afford” simply for financial reasons.

      • “Banks factor costs into their lending models. So although there would be no up-front charge, the bank would lend less because they know that you will be paying land tax on an ongoing basis.”

        Fair point but I don’t know for sure that one necessarily offsets the other completely.

  15. Meanwhile…….the RBNZ presses on….

    ANZ economists say proposed new Reserve Bank rules applying to residential property investors could effect a “huge number” of properties and have a marked impact on overall lending….. The changes would see up to 35% of the private dwelling stock potentially susceptible to the proposed changes. This is around 550,000 dwellings. Investors account for around 30% of new lending. By targeting such a large proportion of new lending, the proposals, if effective, will have a marked impact on overall lending. The economists said the changes would be retrospective, covering the stock of mortgages as opposed to the flow. …this could open a can of worms ….

  16. Idiotic policy from Foley and the ALP.

    Meanwhile, Baird and Pru Goward are cosying up to the developers, and pushing Big Australia, Big NSW and Big Sydney.

    Almost six million people in Sydney by 2010. Who wants that? Who? Anyone here?

    This is the problem with those trying to solve housing affordability with supply measures only. You play into the developers hands and your arguments are easily manipulated by those who will profit enormously from new housing developments.

    We have to stop this Big Australia madness, and all the demand side drivers of house prices in Australia — NG, CGT, FHOG, stamp duty concessions etc — before our cities metastasise across the countryside.

    http://www.smh.com.au/nsw/nsw-state-election-2015/nsw-election-2015-baird-pledges-hed-double-land-release-for-new-housing-20150306-13x8un.html

  17. The Patrician

    Why doesn’t Mr Foley propose to do something really useful like have the NSW state land titles office require the purchasers proof of FIRB compliant residency status/FIRB approval to register the transfer of residential land title?

    One simple low-cost administrative step.