Queensland whacks home buyers

3 Months ago the Queensland Treasurer Andrew Fraser had this to say about stamp duty on residential dwellings.

One of Queensland’s most despised taxes could be axed to save homebuyers tens of thousands of dollars. Homebuyers have paid more than $12 billion in stamp duty since 2006 but the State Government yesterday said it should be dumped.

Treasurer Andrew Fraser described stamp duty as a “relic” and an “inefficient” tax. He said it would be at the top of the state’s “hit list” at a federal tax summit later this year. Federal Treasurer Wayne Swan refused to comment, but housing and real estate groups have welcomed the move.

Homebuyers have to pay about $20,000 stamp duty up-front for a property bought for $550,000, and more than $33,000 for a property worth $900,000. Mr Fraser told The Sunday Mail he could not lift the burden from homebuyers until Canberra reformed the tax system, but he hoped stamp duty could be abolished within five years.

All of which I agree with, in fact I was led to believe that all of these state government taxes were to disappear once the GST was implemented. Silly me!

What makes those words somewhat bizarre is that he and the Premier of Queensland fronted up to the media yesterday afternoon to explain they were actually doing the exact opposite. (click on the picture  to see the video)

In the video Andrew Fraser mentions that he is removing the deduction of primary place of residence stamp duty as of August 1. By removing the stamp duty concession non-first home buyer owner occupiers purchasing a median value property in Queensland will pay an additional $6,300. You can see from the ticker in the picture that the Queensland government has also announced a $10,000 grant to anyone who buys a new home under $600,000, but as far as I can tell, unless these people are first home buyers they will be paying the additional stamp duty. So in fact what the Queensland government has actually announced is an increase in stamp duty on existing dwellings for non-first home buying owner occupiers, and a very small grant ( $3700 on a median priced new build ) for non-first home buyers who build a house if it is under $600,000. The only cohort that actually gets any real value out of this are first home buyers who decide to build. I am not sure what percentage of the market that is, but I don’t think it could be a large number.  Unless I am completely misinterpreting this, it actually looks like a poorly disguised government cash grab and at a minimum a massive back pedal from the Treasurer.

At a time when the Queensland housing market is in rapid decline, how on earth is an increase in stamp duty on existing dwellings for owner occupiers (the largest component of the market ) going to help the anyone?

But there is more.

The Premier has also announced the removal of the Queensland ambulance levy from electricity bills, this will save the average family with one dwelling $2.10/week.  Again I am somewhat confused by this move as it seems a very small amount of money and the Queensland governments own site states.

As the voluntary subscription scheme was not providing enough money to fund the QAS, and the Federal Medicare levy did not fund ambulance services, the Queensland Government decided to raise this money through charging a community ambulance cover levy.

So who or what is going to pay for it now?

The budget is in deficit by $4.08 billion for 2011/12 and will continue to run an operating budget deficit until 2014/15 where the total borrowing is forecast to peak at $48.16 billion. This, however, is based on an economic growth forecast of 5% for the next financial year and 5.25% the following year. Given the current state of the housing market in Queensland, even before these latest changes, and the build-up of risk in the world economy I find these forecast highly optimistic.

None of this has changed my prediction that Queensland is heading for a recession, so too is the popularity of Anna and her Treasurer.

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Comments

  1. Nice catch on the backflip DE, that is truly incredible.

    Good writeup on the whole, but disagree somewhat on the minimal flow on effect that this boost could have for non-FHBs. You say that it could result in only a $3700 grant (difference between boost and stamp duty saving), however putting the $10k into the hands of the buyer where they only have a small deposit it has the potential to allow leverage of the boost. e.g. $10k x 20 – extra stamp duty (in the case of a 95% lend):

    http://www.bullionbaron.com/2011/06/qld-gov-attempts-to-re-leverage.html

    Though I guess the numbers of non FHBs that use it in this manner could be minimal.

    This quality of Australian coverage is just not being seen anywhere other than MB. Keep it up!

    • Sandgroper Sceptic

      Echo Bullion Barron – your commentary and discussion are leagues ahead of the mainstream media. To contribute a couple of nuggets of my own.

      Check this out from Queensland’s budget papers – word for word…

      Transfer duty estimates p217 Budget Strategy and Outlook (Appendix C Revenue Assumptions)
      For 2011-12, transfer duty collections are expected to increase modestly from 2010-11
      estimated actual. However, this is being boosted by the abolition of the principal place of residence duty concession. Underlying growth in 2011-12 is less than one per cent reflecting a weak recovery in dwelling investment which despite stronger growth in employment and wages, is forecast to only improve slightly in 2011-12. This is the period at which the Queensland Building Boost grant is targetted.
      Growth in dwelling investment is forecast to strengthen in 2012-13 as the recovery in the
      broader economy generates higher migration levels.
      Tight credit conditions are likely to continue to weigh on some segments of the market in
      2012-13, but a slight recovery in the property market is forecast reflecting continuing demand for property and house price growth. Estimated growth across the forward estimates is conservative relative to the period prior to the global financial crisis.
      A 1% variation in either the average value of property transactions or the volume of
      transactions would change transfer duty collections by approximately $22 million in
      2011-12.

      So these “assumptions” drive the forecast for transfers (stamp duty) to rise from:
      2010/11 Estimated $1.89bn
      2011/12 Forecast $2.18bn
      2012/13 Forecast $2.43bn
      2013/14 Forecast $2.53bn

      Obviously the removal of the concession will play a part (I am ignoring the immigration nonsense and sky high economic growth numbers) but what are volumes of transfers doing in the Queensland market? They must be down like everywhere else in Australia. There would also be a flood effect where properties are sold at much lower prices due to being damaged or now damage prone as they are built on flood prone areas.

      Another interesting thing that caught my eye was the change in methodology for land tax valuations. Whenever I read that a government (hungry tax beast) wants to change their methodology that normally implies that taxes are increasing. See this:

      pp86-7 Budget strategy and outlook Land tax
      Land tax is levied on the taxable value of the landowner’s aggregated holdings of
      freehold land owned in Queensland as at midnight on 30 June each year. The principal place of residence is deducted from this value. A 50% cap on the annual increase in land values used for the purpose of calculating land tax liabilities commenced from 1 July 2007 and continues to apply in 2011-12. Resident individuals are generally liable for land tax if the total taxable value of the freehold land owned by that person as at 30 June is equal to or greater than $600,000. Companies, trustees and absentees are generally liable for land tax if the total taxable value of the freehold land owned as at 30 June is equal to or greater than $350,000. Land
      tax is estimated to grow by 2.1% to $1.064 billion in 2011-12. From the 2011 valuation, for property except in rural areas, Queensland will adopt the
      ‘site value’ methodology similar to that used in other states. Site value is the market value of the land in its present state, making it easier to understand. It includes the value of any site improvements made to the land to prepare the land for development.

      Sounds ominous for those with property in Queensland. But at least they can console themselves with having an “easier to understand” land tax statement.

    • Thanks BB.

      You are correct about the leverage effect for new builds, that is certainly something I overlooked. However I am more worried about the overall effect. ( and the obvious back pedal when the government needs money , oh … and also the moving the deck chairs )

      I am not sure of the numbers of FHBs who would want to build, but obviously torchwood is one of them. But while this activity is adding to supply, of the already oversupplied market the existing housing stock has just become more expensive due to a $6000+ stamp duty hit.

      This stimulus will only last for 6 months, so as I see it we could see a spike in building activity for 6 months as the rest of the market slides. Once the stimulus period finishes, the value of those new builds will then have to meet the depressed “existing house” market..

      To me that seems like a recipe for financial disaster for anyone who uses the grant to do a new build because as soon as their house/apartment is completed they would have spent far more than the property is worth because it is now a “existing house”.

      Anyone ?

      • Torchwood1979

        I’m just praying that the increased stamp duty depresses the market overall, so I could see a small inflationary impact on land and new builds but if the rest of the market is sliding I don’t imagine new places will pick up that much. I just want a small, tidy house to raise kids in. Damn paternal feelings, they’ll be the financial ruin of me.

        The rational part of me says rent for the next five years though, because the market will continue to slide and interest repayments will probably be more than we’d pay in rent.

  2. Torchwood1979

    Wow, really selling a turd aren’t they?

    Just before the GFC I posted on the Meganomics blog that QLD epitomised the worst of the Australian business model – government revenue through mining and personal wealth through inflated house prices. Now the QLD Government currently seems focused on only damage control for their inadequate revenue base. Screw everything and everyone else.

    Anyway, I’m a potential FHB who would like to build a small, brick three bedroom home on a small block. For once I’m in the minority who benefit from government stupidity.

  3. Torchwood1979

    And I just about reached for the barf bag when Fraser said stampt duty would stay until the Federal Government reformed the tax system. I really can’t stomach this government any longer, whenever I see Bligh or Fraser or Lucas I just turn off.

  4. Qld government are obviously trying to encourage people to build homes rather than buyers swapping exiting homes between each other. Aiming to kick start the flagging construction industry and to boost housing new housing stock (because apparently we have a shortage)

    However to add an extra 6k to an average home price given the current state of Qld’s housing market is a risky move in my opinion and has to further negatively impact house prices.

    On the plus side, the negative impact will improve housing affordability, especially for FHB who are stamp duty exempt and should provide some boost to the construction industry doing it tough at the moment.

    Its a risky move, which could well backfire given the wealth linked to RE but I think there are potential longer term benefits

  5. What I would like to see is someone design the optimal taxation system. I believe the current model is about 70 years outdated. Once Curtin retricted states revenue, state governments have been forced to rely on inefficent taxation systems. They are aslo reliant on the federal govt for funding, but are forced to provide the bulk of the services such as health etc.

    Personally I believe that the states should be broken up, regional govts set up with the 1/2 dozen mayors from the loc gov regions ( who should also be reduced). Health, law and order, all funded from the federal govt. The current system we are slowly headed for the US model. It also forces the privatisation of state govt business, which had provided revenue in the past.

  6. I saw this on ABC24 last night. It amazed me. Making people pay more for housing by increasing stamp duty, will save a market where no one wants to by? How?

    Then giving some buyers $10,000 to by a property with a net gain of only $3,700? It just doesn’t make sense.

    If the market is tanking (which it is) all stamp duty forcasts of revenues are already wrong and will only get worse.

    The drunken sailor of easy cash for state governments via stamp duties with bracket creep is coming to an end.

    I live in Victoria and am a former sandgroper so the inner dynamics of Queensland politics don’t make much sense to me but it really justs sounds like they fiddled with the books for little net gain and based receovery on heroic 5% growth. Which I gather is based on mining revenues?

  7. Not that I agree with the scheme at all but doesn’t it just sound like they are trying to keep existing home buyers happy for a little while longer so they can be voted in again.

    Do you think anyone would reelect them if the value of their homes was to crash?

    People are only concerned with their self interests and politicians are only concerned with being reelected by being the favorite.

    They don’t care that it will only make the market worse in the future, that’s for their future selves to worry about. The market needs a correction, governments are just trying to delay it to stay in power.

    • Yes, QLD election next year. I think this is a ham fisted attempt to give the construction industry a quick kick, stop house prices from sliding and make the voters less cranky when it comes to the election. But they can’t go further into debt, so shuffling the deckchairs is the only option. No milky wilkies from Auntie Anna…

      • It certainly seems likely to discourage home owners from moving, and to that extent can be expected to slow the recorded fall in house prices.

        So cynical.

        • The inertia caused by the increase in stamp duty will mean forced sales will have to offer an even greater discount.

          • And in the absence of forced sales, sales volume will fall even further as those who do not need to move, stay put.

            See this comment on Fairfax in response to the budget:

            “Thanks a lot Anna for making it harder for us to sell our house and buy elsewhere. We have our house on the market and it’s more than likely that we, like a lot of other seniors who cannot ‘just’ borrow more to make up the shortfall, might have to decide that we cannot afford to change homes.”

      • ” I think this is a ham fisted attempt to give the construction industry a quick kick, (and) stop house prices from sliding”.

        I see it nothing of the sort. The AFR this morning tries to peg this as an attempt to redress sliding house prices.

        It can’t do any such thing. I believe, and please correct me if I am wrong, that this grant is a short window as well.

        This will not boost cash flows to people struggling with their mortgage, it won’t get roperties taken off their hands.

        I can only see this is for one thing only, to take on the plan inventory off property developers.

        Gathering the infiltration of property developers within political funding, particularly on the ALP side, I find it distressing that the young and the taxpayer will further bail out property developers.

  8. And the secret to all this is contained in the words:

    “…. until Canberra reformed the tax system, but he hoped stamp duty could be abolished within five years.”

    So when Qld finally begrudgingly drops the stamp duty in response to a reformed tax system, the amount of compensation needed from Canberra for such a move will be just that much bigger, won’t it?

    Shit, these blokes are cunning.

  9. The states and local councils are going to be desperate for money as the volume of housing sales decline, and esp as prices decline. So expect to see a lot more councils asking for extraordinary increases in rates, and the states trying to stealthily increase the revenue they collect.

    Its the us muni problems all over again, what has happened here isnt any different just delayed a few years.

  10. QLD’d credit rating was lowered in 2009 due to its deficits.

    Its now losing stamp duty revenue due to lower RE ‘churn’ (volume).

    Will we see another credit rating downgrade? I believe the Federal govt is now guarantor of QLDs debt so maybe not.

  11. Hi DE,
    Could this cause a flurry of primary residence homeowners to sell before august 1st to avoid the stamp duty? Would that boost, to inventory levels, accelerate price falls and spark a contagous selling panic?

  12. I was flabbergasted myself that they’ve raised stamp duty after talking about abolishing it. Have politicians completely given up on the idea of integrity?

    One of the guys here at work is looking to buy, so he’ll be hurrying up his purchase to ensure he signs on the line before August 1. I wonder if there’ll be an increase in the July figures as the deadline looms.

    I am in the same boat as Torchwood – family on the way and renting, waiting for prices to drop from the stratosphere.

    • Torchwood1979

      “Have politicians completely given up on the idea of integrity?”
      In QLD, yes.

      All the best with setting up home before the kids arrive.

  13. Q and JM.

    I think it is pretty difficult to predict the dynamic that will occur out of this. There could be a churn rise in the lead up to Aug 1. as buyers try to avoid stamp duty and vendors ( especially upgraders ) try to do the same.

    However if this does occur it just means that Aug and Sept will be all the worse for existing houses, leading to an even bigger fall in prices after Aug 1.

    I, like Q, am totally flabbergasted by this whole thing. It makes absolutely no sense and I have no idea who is advising the government on this policy.

    I would suggest that waiting until August/Sept to see the end result is the wisest move.

    • As I said, I would gather its a move to reduce the inventory of developers.

      No other group can be favoured en masse with fudning targetted at new dwellings only.

    • We won’t be pulling the trigger for a year or so at least – I like renting and not worrying about maintenance or lawns 🙂 I will be watching with interest though, to see what sort of impact this stamp duty madness has.

  14. Hi DE. I really appreciate your post and I love your articles. In this one, however, I have to disagree with your interpretation and especially with this statement: “The only cohort that actually gets any real value out of this are first home buyers who decide to build.”

    Any buyer, investor, FHB, or OO, will get the 10K. By removing the deduction of primary place of residence stamp duty, you can easily see the investor on a newly built property will benefit.

    FHBs will pay no stamp duty, no mortgage duty, and 17K towards the purchase. If they were to buy a new property they’d get an additional 10K (making an assumption they can stack the benefits).

    Then my analysis:

    Who is to benefit from the changes?
    FHB purchasing new properties (or building), FHB purchasing existing properties, investors purchasing new properties, OOs purchasing new properties. In that order.

    Who is not to benefit from the changes?
    OOs who upgrade/move to an existing property, investors who purchase an existing property. In that order.

    This is just like the FHB boost to the grant during the GFC with a twist to get add to supply. Last time I checked, it wasn’t a supply problem.

    Stop the government intervention!

    -gt

    • Hi gtempo.

      My point about not benefitting comes from the stimulus effect. They will be stimulating new builds at a time when there is already an oversupply of dwellings on the market. They are also raising the price of OO transaction on existing dwellings, therefore making the major component of the market more expensive again at a time when transactions are very low.

      As I said further up the thread….

      This stimulus will only last for 6 months, so as I see it we could see a spike in building activity for 6 months as the rest of the market slides. Once the stimulus period finishes, the value of those new builds will then have to meet the depressed “existing house” market.. To me that seems like a recipe for financial disaster for anyone who uses the grant to do a new build because as soon as their house/apartment is completed they would have spent far more than the property is worth because it is now a “existing house”.

      >Stop the government intervention!

      Couldn’t agree more.

  15. I entered into a contract to build a new home, a few years back. It wasn’t the only Villa in the World, but I have to walk away from the contract,and lose about 6k, because of the shoddy building work. Even the front door would not close, because it was off square. Borken roof tiles, and walls overhaing the slab.
    So these dodgy polititions are in bed with the Shoddy builders. And as for Fraser, he should have been thrashed more at Primary school. And I would be the first to show up for it.

  16. Bligh and Fraser are G O N E .. but not before running knife through all of us “middle income” cashcows.