Weak housing hits WA Budget

By Leith van Onselen

The Western Australian Government has released its 2012-13 State Budget which, like the Victorian Budget before it, contained some nasty downward revisions to projected stamp duty relief due to the sluggish housing market. From Property Observer:

Western Australian Treasurer and Attorney-General Christian Porter says a flat housing market has cost the state government an estimated $836 million in projected stamp duty over the next four years.

In his budget speech to Parliament he said “transfer duty forecasts in this budget have been revised down by $836 million, reflecting ongoing weakness in the housing market”…

“You would hope that it would improve, but right now there is not movement,” he said.

“Buyers still think that the bubble that burst after 2005 and 2006’s extraordinary growth has not yet quite reached the bottom.”

Budget papers show transfer duty was about $1.2 billion for both 2010-11 and 2011-12, a figure expected to go up 17.7% to $1.45 billion for 2012-13. The government predicts a 17.7% rise to $1.45 billion next year, with the start of a recovery in the market.

The budget Porter presented says transfer volumes has been low in recent years but is expected to improve.

“Housing transfer duty has suffered from weak established housing transaction volumes and house prices in recent years, with average monthly transactions since 2008-09 around  35% lower than the previous four years.”

“However, transfer duty is expected to improve over coming years in line with a forecast recovery in housing demand”…

“Transaction volumes are expected to move toward a long-run trend over the forecast period, while residential property prices are forecast to increase at a modest rate broadly in line with the expected growth in incomes (of around 5-6% per annum).”

Porter expects in four years, transfer duties will be at lower levels than before the global financial crisis.

The below chart shows the movement in actual and projected stamp duty receipts in Western Australia since 2001-02.  Stamp duty receipts peaked in 2007-08 at $2,243 million before crashing to $1,008 million the following year. Receipts have since recovered somewhat and are predicted to continue improving, but will remain well below the pre-GFC high.

And the reasons behind the slump in stamp duty receipts? You guessed it, lower transaction volumes and prices:

Expect the other states to follow-up with large downward revisions to their stamp duty projections.

[email protected]

www.twitter.com/Leithvo

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

  1. It’s always fascinated me how local councils and state governments continue to make fantasy projections based on recent booms – “we couldn’t have seen this coming”.

    Of course not, now how much do you want from me to cover the shortfall?

  2. The volumes of sales Australia-wide will stay low for years: no one is buying and they aren’t going to in a falling market.

    Stamp Duty is a vile way for state governments to fund their work.

    Christian Porter, grasp this crisis to migrate the revenue base, slash the deadweight cost of tax and stop trapping people in their houses. Use Land Value Tax instead.

    Don’t Buy Now!

  3. The volumes of sales Australia-wide will stay low for years: no one is buying and they aren’t going to in a falling market.

    Stamp Duty is a vile way for state governments to fund their work.

    Christian Porter, grasp this crisis to migrate the revenue base, slash the deadweight cost of tax and stop trapping people in their houses. Use Land Value Tax instead.

    • FWIW I may have ignited sales by putting ina couple of low offers recently. RE agents used my offers to encourage other reticent buyers to cough up. “We have a godd offer already and this may be snapped up so you will miss out” sort of argument. Personally I’d ask to see the offer first.

      • Rod, what about the big mining town like Port Hedland? I heard on the radio that Gladstone, and Port Hedland had real supply problems. Is that hype? I had a quick look at PH, and the prices were massive for shacks by the looks of it.


  4. a flat housing market has cost the state government an estimated $836 million in projected stamp duty over the next four years

    That’s an hilarious way of putting it. Spotlights the way that state governments have inserted bubblicious housing activity assumptions in to their future projection, from now until the end of time. And nothing else will be good enough for them!

  5. outsidetrader

    “Buyers still think that the bubble that burst after 2005 and 2006’s extraordinary growth has not yet quite reached the bottom.” I love that the WA Treasurer can make a statement like this.

    Looking at UE’s houseprice chart for WA over thwe past decade, it’s pretty clear that the bubble hasn’t “burst,” and that prices are higher now than they were at any time in 2005 or 2006.

    But despite that, WA Treasury will forecast house price growth of 5-6% per annum over the next four years. Look out for the “shock” downwards revision when the budget papers are updated in another six months…

  6. 2005/6 to 2007/8 are the abberation in sales turnover, showing a surge in activity that was always likely to peter out. Simply because property prices/mortgage requirements hit a ceiling. Without new entrants into the WA (and other) markets) being able to overcome the extreme market entry hurdles property sales figures cannot rise by too much if at all, especially while cap growth numbers are such a disensentive.

  7. Alex Heyworth

    Time for state governments to bite the bullet and get rid of stamp duty altogether, making up the shortfall by extending land tax to all land.

  8. It seems like an exact repeat of the American states’ fiscal problems with a few years’ delay.

    When property booms:
    Increase tax on property transactions.
    Reduce other tax.
    Economy booms.
    Electorate happy.

    Govt predicts trend of property bubble infintely into future. Spends projected future revenue now on circuses for masses (footy stadiums etc).

    But then property stagnates:
    Revenue from property taxes drop.
    Govt borrows money to make up difference (and unsuccessfully to stimulate economy), cuts costs, sacks workers, small increase in taxes to cover shortfall.
    Economy suffers as result.
    Electorate whinges and changes govt, hoping for a return to step one.

    The next step (3) is obvious:

    Property actually drops.
    Revenue from property taxes plummet.
    Govt’s ratings cut & funding costs surge.
    Govt massively increases other taxes, while the economy is already shrinking, causing it to shrink faster.

    The vicious circle is complete. Obvious, obvious, obvious!!!

    • dumb_non_economist

      Thanks for nothing greebly24, I’d forgotten all about that ******* stadium!

        • It’s not the building of the stadium I have a problem with, rather who is paying for it.

          Same goes for the ******* waterfront development.

        • Also forgot about the new $500m Museum..

          http://www.perthnow.com.au/business/2012-state-budget/wa-government-delays-18b-in-projects/story-fndotr3v-1226359334461

          MORE than 30 projects have been deferred as part of a restructure of the State Government’s capital works program in order to reduce runaway debt that will blow out to $18.5 billion next financial year.

          The government today said it would spend $26.4 billion over the next four years on infrastructure, including a record $7.6 billion in 2012-13.

          However, Treasurer Christian Porter said the government was not prepared to take on more debt that it could handle to fund the infrastructure projects, blaming the position on WA’s declining share of GST revenue.

  9. Diogenes the CynicMEMBER

    The projected surplus for FY2013 of $196m would be wiped out by a flat transfer duty result – ie no change in volumes or prices for FY13 on FY12. From what I can see that would actually be a good result, prices and volumes are both down. So changing one line item to a more realistic fore cast would wipe out the “surplus”.

    Further out the figures are total hocus pocus how will transfer duty rise from FY12’s 1.23bn to $1.91bn in FY16? – answer it won’t.

    The iron price projections are also scary…US$127/tonne for FY13 (gulp too high) and 115 for FY14 (too high). Admittedly they have the Aussie weakening to 0.99 in Fy13 (more likely to be less than 0.90 so some bonus here) and 0.92 in FY14. They have factored in big expansions by BHP and Rio as well so if they do not come through iron ore royalties will be much lower and iron ore royalties drive WA’s budget 16.7% of total government revenues in FY13 and 19.4% in FY14.

    Mind you the GST clawback to the eastern states is certainly affecting the State budget and is a central feature of WA Premier Barnett’s defence strategy should things go awry.

  10. “Western Australian Treasurer and Attorney-General Christian Porter says a flat housing market has cost the state government an estimated $836 million in projected stamp duty over the next four years.”

    Your loss is our gain.

  11. So some are starting to get it. Australia is exactly the same as the PIIGS. A banking system and a real estate system built on a ponzi scheme. The OZ implosion is now taking place in real time. If you can find a bid on your property at -20%, HIT IT. It’ll be the best trade you do 2012-2015. The next three years will see a complete collapse of banks, housing, China, and this time with the government (& opposition) marching towards fiscal surpluses there will be no 2008 bailout. See you at the bottom !