The Victorian government’s housing addiction

In last week’s article, Housing slide to hit Victorian Budget, I posted a series of charts showing how Victorian housing transaction volumes have slumped:

And how the number of mortgages lodged has, for the first time in a decade, fallen behind the number of mortgages discharged:

The implications of this analysis was that the falling debt issuance is likely to further depress Victorian home prices which, when combined with falling transaction volumes, is likely to significantly reduce stamp duty receipts for the Victorian Government, and could ultimately lead to sharp falls in home construction – a key pillar of employment for the Victorian economy.

When undertaking this analysis last week, I was unaware of just how reliant the Victorian Government had become on property-related taxes. The below chart, which has been extracted from the Victorian Budget Papers, shows the massive growth of stamp duty and land tax receipts since 1996-97:

Incredibly, Victorian property tax receipts increased by four-fold between 1997-98 to 2010-11  – from a low of $1.3 billion to $5.3 billion – and, after a small projected drop in 2011-12, are expected to continue their upward trend into the forward estimates, where they are projected to peak at nearly $6 billion in 2014-15.

Stamp duties and land taxes currently contribute just over one-third of Victorian Government tax receipts:

And the growth of these taxes has helped to offset corresponding strong growth in government employee salaries:

But with Melbourne home prices on the slide:

Stock on market surging:

Victorian home construction levels elevated:

And debt issuance subdued, the Victorian Government’s forecast of steadily increasing property tax receipts is optimistic.

Expect big revenue downgrades in the lead-up to next year’s state budget.

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Comments

  1. Its not only Transaction volumes and prices falling. Remember one of teds core election promises gave FHB’s a 20% discount on stamp duty in 10-11, and will cut it another 10% each year for the next three. Not sure how he’s going to be able to come through with it.

    & Pay for the nurses wage increases

    He’s going to have to bump up land tax rates towards a similar scale like NSW IMO.

  2. It would be ironic if the collapse of stamp duty caused the extension of land tax to the family home.

    • More amusing still for people (like me) who have bought a house recently (in the full knowledge prcies will fall) and paid the monster stamp duty who will then be told to fork out land taxes before the hole in their pocket has stopped bleeding!

      • Which begs the question why you bothered to buy now why it is still so overpriced?

        Although I do realise some people do not have the luxury to wait until the perfect moment.

  3. Hugh PavletichMEMBER

    Its clear from the dwelling approvals graph, that once Victoria’s approvals fall over a liff, its good night nurse Australia.

  4. Interestingly it seems that home transfers have peaked annually in September-October in Victoria, which would mean that there’s seasonal downward pressure on demand to counteract any positive market sentiment coming from the recent interest rate cut.

    It’s looking very likely that a lot of listings will be back on the market next February/March, with vendor sentiment likely to take a big hit. With no apparent signs of an increase in demand on the horizon downward momentum in property prices could pick up.

    On the VIC State Govt side, how are they going to increase revenue to compensate for the likely stamp duty slump? I think it’s likely that a stamp duty shortfall of nearly $1B could be the reality for this financial year, which is a big hit. The question is Ted confident enough to borrow the shortfall and risk the credit rating, or introduce a new tax?

  5. A good start to saving some coin would be abandoning the ridiculous armed-security guards at stations scheme.

    Alas this being a Liberal government, it’s the nurses and teachers that Ted will take aim at.

  6. darklydrawlMEMBER

    Leith,

    Great stuff. I have been concerned about Victoria and inparticular the state Government revenue for several years now.

    Given the amount of money that has been spend (or wasted) on suspect projects (Myki, Desal, Numerous IT snafu’s to name a few) I have been worried about how they are going to keep funding all this madness plus keep the lights on and the services tick over.

    Given it has been bleedingly obvious that much of the motza they are splashing aournd has been coming from inflated house prices (ie stamp duty increase) and other taxes related to property transactions.

    If that goose gets sick the whole budget gets shakey….

    I still think it is going to end in tears here in the next 3-5 years.