It’s time to abolish stamp duties

By Leith van Onselen

A raft of data has been released recently illustrating the sharp drop-off in housing transactions since mid-2010.

First, the total number of home sales across Australia in 2012 was the lowest since 1996, according to RP Data (see next chart).

Second, the average holding period for Australian houses has risen substantially over the past decade, from 6.8 years ten years ago to 9.3 years currently, according to RP Data (see next chart).

And finally, the dwelling turnover rate, as measured by the RBA, has fallen to levels not seen since the early-1990s recession (see next chart).

The sharp fall in housing transactions has reaped havoc on state government finances, which tend to be highly reliant on conveyancing duties (‘stamp duties’). In 2011-12, total receipts from property stamp duties were -20% below the peak levels of 2007-08, in spite of the solid gain in property values over that time period (see next chart).

Last year, the ACT Government announced the bold (and sensible) plan to transition out of stamp duty over 20 years, replacing it with a broad-based land tax levied via an increase in property rates. Reforming stamp duty was also a recommendation of the Henry Tax Review, which characterised stamp duty as an inefficient tax, and recommended replacing it with broad-based land taxes levied on all properties, which are more efficient. And in their recent pre-budget submission to the Australian Treasury, the Urban Development Institute of Australia (UDIA) called for an end to stamp duty over a five-year phase out period.

Removing stamp duties has a lot of merit. It is a highly inefficient tax that discourages housing turnover by unneccesarily penalising people that move to homes that better suit their needs. Obvious examples include baby boomers downsizing from large family homes and young growing families upsizing to bigger family-friendly homes. Such disincentives inevitably lead to an inefficient use of the housing stock, such as empty nesters occupying large homes with multiple spare bedrooms. Stamp duties also hinder labour mobility since they discourage workers from relocating closer to employment.

Stamp duties are also highly inequitable. As shown in the above RBA chart, just over 4% of the housing stock is currently transacted annually. As such, we have a bizarre situation where only around 4% of the population are paying taxes that support services for the whole community – all for the privilege of moving to a home that better suits their needs!

As shown in the below chart, stamp duties can chew-up tens-of-thousands of dollars when purchasing a median priced home. Seeing as we all consume government services, wouldn’t it then be fairer and more efficient to levy each household a much smaller amount, rather than penalising only the small minority?

Of course, any abolishion of stamp duty would need to ensure that those that recently purchased a property (and paid the tax) are not double-taxed. Accordingly, a gradual phase-in like the ACT model would be fairest and most workable.

So what are policy makers waiting for?

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. “..what are policy makers waiting for?” The policy makers all own property. Abolition of S/D would see prices fall…they can’t want that on a personal basis!

    • I’m probably missing the blindingly obvious, but why would s/d removal = lower prices? Removing the upfront cost would increase ability of borrowers to pay more for a property & may be an enabler for more buyers to enter the market.

      • Removed S/D has to be replaced by another revenue stream…say…Land Tax…that affects ALL proeprty, not just the transactional ones.

        • So I guess that might bring some properties onto the market where the owner currently has low holding costs and land tax will be too much to bear, but I’m thinking those property holders would be in the minority. I think there would be a larger number of ex-property owners (myself included) who might be more incentivised to purchase if upfront cost of stamp duty was removed.

          Wonder if there are any global examples where a similar tax has been removed (replaced with land tax)… Leith? 🙂

          • I agree that a property tax will a marginal effect on prices, if any. Similarly, it’s unlikely to increase turnover to any great degree. Australians spent the past couple of decades swapping houses at a crazy rate, paying stamp duties all the way. This is largely because from the point of view of the buyers and sellers, stamp duty is just another transaction cost, and every market has costs. E.g., in Texas, both buyers and sellers have roughly the same total costs: around $15K on a $200K property.

            A property tax will also have some unwanted side effects, such as forcing the elderly out of long-occupied family homes and into places where they don’t have social or support networks. This will make it politically difficult to sell.

          • “E.g., in Texas, both buyers and sellers have roughly the same total costs: around $15K on a $200K property.”

            Please explain?

            “A property tax will also have some unwanted side effects, such as forcing the elderly out of long-occupied family homes and into places where they don’t have social or support networks.”

            Not if it is set-up properly. E.g. the tax liability can be accumulated and paid upon death once the home is sold.

            Also, what about the unwanted side-effects of the current system, such as young growing families being penalised tens-of-thousands of dollars for moving from an apartment into a familiy-friendly home? Do they not matter?

          • It’s hard to find a good summary of typical closing costs in the US, but I found the following approximate examples for Texas:

            http://insidedfwhomedeals.wordpress.com/2010/04/12/closing-costs-how-much-are-they/

            Note that taxes are only a small part of these costs.

            BTW, my googling wasn’t particularly exhaustive, so a more thorough search might turn up different numbers.

            My point is that transaction costs are significant in many jurisdictions, not just here, so we aren’t special in this regard. (Although our costs are pretty steep.)

            Lastly, I’m not disputing that the current system has side effects, I’m just pointing out that a land tax has a downside that has to be addressed.

        • Or just cut wasteful government spending.

          Over 70% of health spending has gone towards bureaucrats, not doctors, nurses and beds.

          • Jono, this debate is about tax bases – where government gets its money. Switching the discussion to where government spends is a distraction, no matter how enticing that topic is. A classic anti-government debate switch, but you aren’t one of them, are you.

      • That’s correct BB. At the moment SD is the only prudential control there is.

        A well structured land tax might fix this but perhaps not in the short term and not with the current settings of the RBA.

        • Think of it this way. S/D is a discretionary tax…you can’t force people to pay it if they done’t want to ( you can’t make people buy or sell a property – sin’t that what’s showing up now?) but Land Tax, say, is unavoidable…and what do revenue raisers LOVE? Unavoidable taxes. So, anyone who owns a property when or if Land Tax is brought in is subject to the whims of the revenue raisers. It can be brought in at 1% today, and a Cyprus-like 50% can come in…..at any future time. Given the uncertainty around ‘what can happen’ who’d want to hold a $50m property portfolio?

          • Janet you are massively underestimating the vested interests in the rent-seeker game.

            We actually ended up with a very unpopular energy use tax (aka carbon tax) ahead of land taxes. Land taxes tax politically powerful – don’t hold your breath.

          • MsSolarFelineAU

            + an infinate number, Janet!

            And, when one RENTS, guess who pays the increased fee/tax/burden???? The END user!! aka TENANTS….

          • Tenants only pay what they choose to/can, MsSolar. Blood and Stone come to mind.At some stage, someone with a property that ramps the rent to recoup costs, gets left with an empty property, as tenants move to where rents is cheaper. Landlords don’t stick together (to impose higher rents in an area!) because they all have different financing imperatives. Those with the highest costs, might actually drop rents the most, as they have most to lose by having their properties empty !

          • MsSolarFelineAU

            Tenants only pay what they choose to/can, MsSolar. Blood and Stone come to mind.
            Oh most certainly, Janet! Rents in Sydney CBD are *now* for 2bed/2bath/car-space or garage $650 for something reaaallly shait, and average over $720 per week. (if readers don’t believe me, go use *google* yourselves)
            I am happy to be 15 mins away from Sydney CBD by train, and paying half my previous rent. I still have to travel to my GP who treats my illness, but less rent to pay, and a chance to SAVE.

          • Boycott stamp duty

            Janet notes that “you can’t make people buy or sell a property”. Indeed, even if you’re a current home owner who needs to move, they still can’t make you buy or sell: you can let your old address to tenants and rent your new address. In that case there’s no change of ownership, no stamp duty, no conveyancing fees, and no agent’s commission; and you can claim “negative gearing” on your old address if the interest and other outgoings exceed the rental value (an undesirable but overwhelmingly common situation). You might pay land tax and rental management fees; but that’s all tax-deductible too, unlike the costs of selling and buying your principal residence. You might eventually pay capital gains tax, but only if you actually make a capital gain (a big “if”). No such safeguard applies to stamp duty, conveyancing fees or agents’ commissions.

            Of course, if everyone adopts this strategy for avoiding stamp duty, governments will be forced to change the rules; but early adopters will save a fortune in the mean time.

      • I think that Janets on the money. It may initially give property a kick on but long term it would reduce the cost of housing, and make the collection of those taxes more fair and equitable.

        Then they need to exempt housing and land from the GST, which would probably reduce all homes by around $50,000.

      • I believe that replacing stamp duty with a broad based land tax would reduce the price of land very significantly. It makes no sense own vacant land, paying property tax every year, earning no income and with little likelihood of large capital gains. As an investor, you want to put that land to use when you acquire it, not sit on it paying annual taxes.

        I will use Austin, Texas as an example of a jurisdiction with very low transfer taxes and a broad based property tax. The annual property tax is usually between 2.3% and 2.8% of the assessed value of the property. The government charges on the recent purchase of a house there came to, wait for it… $24. The charges on a sale are similar. There’s another small charge if a mortgage is being registered or discharged. Clearly these are insignificant and do not impede a decision to buy or sell, unlike the stamp duty arrangements we have in Australia.
        The gross rental return on residential property there is generally higher than areas of the U.S. that have lower property taxes. This has been my observation from investing there, but there will be exceptions due to local supply/demand and the effect of foreclosures/bank owned inventory. The tenants are effectively paying the property tax. Remember if they bought a house, the would be paying it anyway.

      • The Householder

        A land tax creates a disincentive for people to hang onto properties that are surplus to their needs or larger/more expensive than they need. A land tax makes people more likely to consider whether they still need a 5 bedroom house when the kids have left home, whether it might be easier to rent a hotel than own a holiday a holiday house, and that it might be best to hurry up and do something with that disused factory/office space rather than paying tax on it every year for no return.

        The other advantage of land tax from an economic perspective, is that you’re taxing something that can’t disappear. Taxing anything has a disincentive effect – tax labour income, less benefit from working, lower labour supply; tax cigarettes, smoking becomes more expensive, lower cigarette demand; tax interest income, saving is less rewarding, people save less. Tax land, more cost in owning land, people want less land, because land doesn’t disappear, supply stays the same and purchase price goes down (because holding costs have gone up).

        • An all too sensible a post. That’s why Land Tax is unlikely to happen! Who do you think holds all those unproductive 5 bedroom plus houses; that undeveloped land and those idle inner city factory spaces? Well I’ll give you a clue. Check the ballot paper at the next election and correlate that with the above….my guess s that, that will answer the question.

        • Agreed.

          Note however that the proceeds of property taxes proved to be volatile in U.S. states that tax on market value (not all do) and which saw big falls in those values. So it’s not completely free of volatility in tax collections. Revenue in states like Texas where values fell much less were not seriously impacted even though they use appraised market value as the basis for the tax.

          • This is a profound virtue of Land Tax: the automatic stabiliser function. When land prices riise or fall so does the tax, in proportion and across all land owners.

            In an era of rapid falls (soon,soon) one could argue revaluations should be as frequently as every six months. Easy with computers.

            In contrast, revenues from SD have shrunk on current low turnover without providing practical relief to anyone.

            State Treasury ought to be drooling over the capacity this tax has to moderate excesses.

          • “This is a profound virtue of Land Tax: the automatic stabiliser function. When land prices rise or fall so does the tax, in proportion and across all land owners”

            This is the problem with land tax based on property values too. The spending costs the taxes are used to fund are less flexible such as the cost of road maintenance, government payrolls, etc

          • Surfbeach, government is not simply a fee-for-service functionary that does things private citizens would otherwise neglect. Astute economic settings, of revenues, debt and spending do make a great difference to our lives. This is not socialism as the manipulation of just these levers by, say, the Howard government demonstrates. In times of general retreat, government should spend more and tax less. This may not accord with your personal world view, but this is what they do. If land prices are falling, taxes should back off too. If this means a defecit (shudder) well so be it..

  2. A broad based land tax for those that have already paid stamp duty – no , I know a deposit tax !

    No folks put simply we need to address a budget which is out of control and lets ban negative gearing for a start.

    • +1 Mitch.

      I am sick of talk of more taxes to fund pollies waste.

      Land taxes are already paid on commerical/industrial property and investment housing so all thats left to tax are home owners on top of their property rates and taxes.
      A homeowner land tax will have exemptions such as for less well off owners so say no land tax on homeowners owining homes up to say $750,000, pensioners etc. So an even smaller number will be paying higher and higher taxes.

      What will happen to farmers and small landholders eg those with an acre or so growing fresh veggies for sale? More exemptions?

      If people want to buy property let them pay for it as at present.

      Fortunately I do not think this silly idea will float politically as voters will soon see an ever increasing tax on their homes.

  3. ceteris paribus

    Definition question: Do holding years apply to the total stock of houses or are they a measure of the of the actual houses turned over during a particular period?

  4. Excellent article.

    The politics of such a change are not difficult as the ACT has demonstrated.

    Compared to introducing a GST it would be a walk in the park.

    There is some hope that good sense will prevail in NSW as Mr O’Farrell seems serious about the sort of economic reform the ALP dropped the ball on – perhaps while they were arranging their rural retreats that just happened to be close to mineral resources.

    Hopefully in opposition the ALP will study history and realise what made Hawke-Keating successful.

    Reform that resulted in an stronger economy that helped the little guys.

  5. Transaction numbers are only going to get worst unfortunately for REA and states as property investors are now the main purchasers, investors will keep their properties in their SMFS for decades not years.

  6. Bryan Kavanagh

    Well said UE. Policy makers are slowly but surely being painted into the corner labelled “Henry Tax Review” but it’s all too much for Liberal-dum and Labor-dee, our so-called representatives.

  7. reusachtigeMEMBER

    I’m actually ok with things how they are. I like seeing our governments suffer for their poor decisions. lol.

  8. Hi UE,
    I was wondering what the typical holding period is an for individual owning investment properties vs personal residences.

    It seems to me that with any IP that is structured for a strong positive return, the investor has very little reason to sell the IP. Before selling he would need to find a better returning investment. Even with Negative gearing considered the IP owner probably has a longer ownership horizon than the typical employee, especially in today’s volatile employment markets.

    This ownership period difference makes SD effectively a regressive form of taxation effectively transferring wealth from middle income workers to the property investor.

    My guess would be that most individually owned IP’s are purchased when the investor is between 40 and 60 and disposed of before the investor is 75, resulting in an IP ownership period of something like 15 to 25 years.

    • Before selling he would need to find a better returning investment

      Not necessarily.

      The reason could be liquidity, not a competing alternative.

  9. Hong Kong, a city which has housing unaffordability worse than Australia, recently doubled its stamp duty to 8.5% for properties worth >$HKD2m (about AUD250k, an amount that doesn’t but much anyway) for non-occupier (ie investment) properties.

    Obviously they think increasing the stamp duty will decrease speculation, and on the corollary, if stamp duty was reduced as per article, wouldn’t that increase speculation?

  10. If stamp duty was replaced with a land value tax, which is a holding fee, it would bring vacant or poorly used land onto the market and enable more renters to become owners.
    Rents would not rise as the landlord cannot pass on the tax as the market value is already being charged.
    Imagine yourself as a landlord. You may decide to charge a bit below top rate to avoid a property being empty or hold out for top rent meaning the property may be vacant for 10% of the time. Either way you will get as much as possible. The landlord cannot pass on the land tax any more than he could pass on an increase in his children’s school fees.

    Those who own land and homes in prime locations can claim all their lifetime income tax payments in one land boom period. Many of the younger generations are going to be long term renters and will pay hundreds of thousands of tax in a lifetime and get NOTHING back. The rich get subsidies from the poor in this system. LVT reverses that.

  11. I heartily second this motion !

    Its not very often that you hear anybody on this website advocate a reduction in taxation or government spending, so its great to hear someone present the case for the abolishing of stamp duties.

    In all seriousness, when a buyer and seller agree on a transaction, why should some greedy bureaucrat be skimming tens of thousands of dollars to permit it to go ahead ?

    This is still a free country, is it not ?

    • Easy tiger.

      The case being presented is replacing SD with a broadbased LVT.

      Are you still on board?

    • The concept of stamp duty was a monarch used to ‘stamp’ a deed with their seal.

      The authority of the monatch would ensure property rights.

      Theis enforcement incurs an expense, and the duty was the fee for complying with enforcement costs.

      Obivously as a avenue for fund raising, stamp duties have tended to has an extraordinary cost exceeding the cost of utility.

    • True.

      In SA we also have a land tax ( quite steep and increased every year) to gether with the SD. Land tax will have to be broadened and raised so people not iqn the land tax net will have to be brought in (?)

    • You’re a voice in the wilderness, Rhett.

      The problem is that stamp duty is a minor factor, at best, in property prices, as is the land banking that a broad-based land tax is supposed to reduce. The real causes are many and complex, but unfortunately, MB readers prefer simple answers.

      So that’s what we get.

      • This article doesn’t seem to be doing much talking about stamp duty as an influence on prices.

        It’s talking about how stamp duty is inefficient, acts as a brake on labour mobility and concentrates the bulk of revenue raising needs on the minority exchanging houses, rather than the majority using services.

  12. Land tax already exists on IP in WA at least. So this cost is already factored into current rentals.
    A further tax will increaswe landlords costs and will be pressure to increase rentals as soon as the market allows it to happen. For example in WA with the present shortfall of rental properties rents will go up immediately due to this type of new tax. In other places where there are excess rental properties this cost will be borne by the landlord but the pressure will be there to increase rentals as soon as the market allows this.

    • Yes, but you also forget that if the SD is removed and rents increase, this means that buying a house now becomes more affordable/viable because then mortgages are now closer to par with rents. This would mean (eventually) more housing stock on the market to rent or rent prices have to drop.

  13. As already said above Stamp Duty is an unfair tax because the standard of living of the whole community is serviced by the payments of just a few. Stamp duty affects people who have to relocate for work, pensioners who wish to downsize, renters if the cost is rightly passed on by investors and first home buyers alike. GST implementation was supposed to fix this problem.

    The cost of home sales shown on sales reports not include Stamp Duty and unfortunately if Stamp duty is abolished then theroetically there would be more funds available for the purchaser to use in the purchase of property. In a sellers market the price would go up.

    This being the case I do not understand why so many people making comments on this site object to incentives for first home buyers. Stamp duty is unfair, do not penalise first home buyers. GST on essential items such as housing materials brought about an increase in the FHOG and as most here agree a home is an essential need. If Stamp Duty is abolished keep the FHOG because of the GST if Stamp Duty remains waive the tax for FHO’s.

    • As already said above Stamp Duty is an unfair tax because the standard of living of the whole community is serviced by the payments of just a few.

      Stamp duties comprise a small total of an individuals overall tax expenditure.

      That’s like saying ‘income tax is unfair because the standard of living of the whole community is serviced by the payments of half the community’, and income tax receipts ae vastly greater than stamp duties.

      Stamp duty affects people who have to relocate for work,

      Income tax affects those that work, regardless of if they move.

      pensioners who wish to downsize,

      Income tax pays for pensioners.

      renters if the cost is rightly passed on by investors and first home buyers alike.

      ‘Rightly passed on’… now we see what motivates the squeals.

      GST implementation was supposed to fix this problem.

      awww..

      The cost of home sales shown on sales reports not include Stamp Duty and unfortunately if Stamp duty is abolished then theroetically there would be more funds available for the purchaser to use in the purchase of property.

      Which is not what we need.

      In a sellers market the price would go up.

      Sellers don’t need the price to go up, sellers need to accept the price going down.

      This being the case I do not understand why so many people making comments on this site object to incentives for first home buyers.

      because incentives for first home buyers don’t offer any benefit to first home byuers. in fact it is more likely to harm first home byuers.

      Stamp duty is unfair, do not penalise first home buyers.

      First home buyers in omst states have stamp duty exemptions, they are the least penalised of all.

      GST on essential items such as housing materials brought about an increase in the FHOG and as most here agree a home is an essential need.

      Agree, so lets build 2 million more dwellings, then housing will be nice and affordable for thes first home buyers you care so much about.

      If Stamp Duty is abolished keep the FHOG because of the GST if Stamp Duty remains waive the tax for FHO’s.

      No… no… lets abolish negative gearing on residential property instead.

      • oh rusty, still cannot see past your hope of a housing bust regardless of how many people it may affect. Fortunately I am not negatively geared and a reduction in house prices would not really trouble me. I am however intersted to know your motives for hoping for a housing bust and vengeance on the people who have already worked hard to get there own place though if you care to explain.

        Stamp duty only taxes those who buy and it is usually a substaintial amount (not something that can normally be defrayed in a few weeks it normally takes months or years for the purchaser to repay with interest), something akin to a deposit tax or what a financial planner would charge to manage someones invertment portfolio.

        If people have the hard luck of losing their work due to things such as a high exchange rate why if they have to relocate should they have to pay a special movement tax (stamp duty) to support the general community? Things such as this are not fair. It needs to change.

        You have mentioned other points

        “In a sellers market the price would go up”

        and conversly in a buyers market the price would go down. I didn’t elaborate but in the current i would expect the actual price paid would remain the same except the recorded price paid would includ the additional purchasing power provided by the abolition of stamp duty. (the real cost of the purchase is not shown at the moment)so no actual change in cost to the buyer but a change in recorded cost.

        “lets abolish negative gearing on residential property instead”

        Ok by me. But any business venture should be treated essentially the same tax wise whether it is retail, service or manufacturing. Tax deductions for loss should be permitted against future profit. Incentives given where the government deems appropriate for various industries.The rental industry is a need as not everyone would want to buy evenif they could afford it. If there was no rental industry the slack would have to be provided by way of government housing and I am certain that private rental is probably more efficient(cheaper for renters or taxpayers)

        “‘Rightly passed on’… now we see what motivates the squeals”

        any investment would be made with an expectant return just like in any other business.

        This comes to my argument against land tax on rental properties. It is really a tax on renters not property owners. The government is targeting the underpriveledged with this one making it even harder for them to save for a home and helping those who already have a home.

        I am doing fine and have little need myself, Investment propertiy is hard work, forex seems like taking money from the unwitting (somebody loses for me to gain) speculation in stocks seems similar to speculation in property (without the liquidity issues property has but larger fluctuations in price.)I hope that a fair way of taxing our community is developed with regard to the basic needs of people being fundamental in those deliberations. I have children and grandchildren and look forward to them becoming home owners one day.

        “…so lets build 2 million more dwellings, then housing will be nice and affordable for thes first home buyers you care so much about.”

        That seems a sensible comment, what kind of housing do you have in mind?

        • One easy way for the generations and poor that are the victim of the vile slimy rentseekers is to be more subversive in how they treat the property.

          Wear it hard, make it costly – take the profit out of it any way you can. Oops wear and tear on the carpet, oops the plants are dead oops quite a few scratches on the floor.

          Time for the victims of the little-landlords to start fighting back i’d say.

          • what a strange point of view… seems to be a tinge of bitterness here.

            We have had comments about little landlords not charging a reasonable rate of return by some as a reason for sale prices to be so high because if a sensible business model was produced investors wouldn’t be buying at the current prices. That is possibly true and there is no evidence of larger commercial enterprises offering rental accomodation. However I think it is more likely that the return on the business of providing accomodation is lower because home owners are prepared to pay more for what they want which leaves a lower margin due to competition. This reduced cost is passed on to the renter saving them money. Slimy rentseekers should be avoided at all costs but good ones should be applauded they are helping society.

            Your suggestion would only reduce the stock of housing and leave people homeless. The best way to fight back would be to get your own home, like I did, owner build, struggle without TV and carpets for a few years, buy cheap cars, keep your living costs as low as possible while you save to purchase more building material to finish your home.

            What do you think?

            I would also like to know if anyone has an answer what the real cost to government is of providing public housing accomodation. Not the overall cost which can appear cheaper than it actually is due to sales of existing housing stock but the cost of building and maintaining a rental property in a certain location so it can be compared to private rental accomodation

          • is it? i actually own my own pad – but since i appreciate how frustrating working with the little landlords is i have nothing but sympathy for the generations and classes treated at meal tickets for the rentseekers.

            A great way to go would be to limit rental returns on established houses that are unimproved and purchased for speculation and punish on capital gains. 1% sounds like a good value. Really, a proper land tax should just wipe this rentseeking out.

            For those who build a new place or materially improve an existing place then this obviously shouldn’t apply.

            Fact is that specufesters buying established houses are a blight on society – they are the most base form of rentseeker.

            The property investors are not business people they are just opportunistic asset buyers who are are preferentially protected by the central banks for reasons that i often comment on.

          • Also – please refer to my comment on the US housing gains piece. The hedge funds are now using the cheap money to try and build leasing portfolios and then securitise.

            This will fall over in due course – as it always does. But in the time between fall and speculations ordinary families will be at the whim of those with access to the cheap capital.

            This is unethical no matter how you cut it unless the capital is materially improving the stock.

        • What if the SD was halved and a good land tax was introduced on undeveloped land and land that hasnt been built on, lets say you have a 2 year grace period.

          • what I mean by a “good land tax” is one that is quite high so that it negates the advantage of land banking.

          • that is what is being done in the ACT but unfortunately government land development cost mean that land supply is still expensive.

            It might work in states but there are some regional areas where land is cheap and people wouldn’t build even if they could because there is no market for the product

        • oh rusty, still cannot see past your hope of a housing bust regardless of how many people it may affect.

          The current situation impacts many people with real suffering.

          A housing crash can be as benign as putting some people into negative equity, whih is meaningless if they continue to have jobs.

          Fortunately I am not negatively geared and a reduction in house prices would not really trouble me.

          I wasn’t targetting you. I’m seeking to reduce the undue incentives that investors have compared to aspiring owner-occupiers.

          I am however intersted to know your motives for hoping for a housing bust and vengeance on the people who have already worked hard to get there own place though if you care to explain.

          My motives are to restore housing to a proper price because there is no bubble worse than a housing bubble.

          It’s effect on aggregate soverieng debt, its affect on family formation, it’s affect on productivity and enterprise, are all gross negatives.

          A crash is required because it is the only method of restoring the price as it can’t and won’t be done voluntarily.

          The disingenuous cliam of ‘hurting hard working people’ is vile. Investors are not a class with a special pedigree in work ethic, and there is a greater case for them being the oppopsite.

          Stamp duty only taxes those who buy and it is usually a substaintial amount (not something that can normally be defrayed in a few weeks it normally takes months or years for the purchaser to repay with interest), something akin to a deposit tax or what a financial planner would charge to manage someones invertment portfolio.

          OK.

          That’s called risk, investments contain risk.

          If people have the hard luck of losing their work due to things such as a high exchange rate why if they have to relocate should they have to pay a special movement tax (stamp duty) to support the general community?

          They don’t, they have to pay a levy for disposing of an asset.

          As far as ‘supporting the general community’, taxes have to be raised somehow, and all tax reform and debate is about what type of activity do you tax.

          Things such as this are not fair. It needs to change.

          There is no greater burden of unfairness today than the one being borne by young, aspiring home owners and the impacts of it via high rents, high debt or factors affecting family formation. Your claims about struggling house transacters pale in comparison.

          You have mentioned other points

          “In a sellers market the price would go up” (sic: that’s your claim)

          and conversly in a buyers market the price would go down. I didn’t elaborate but in the current i would expect the actual price paid would remain the same except the recorded price paid would includ the additional purchasing power provided by the abolition of stamp duty. (the real cost of the purchase is not shown at the moment)so no actual change in cost to the buyer but a change in recorded cost.

          We don’t need anything but for the prices to go down. There should be no consideration about preserving the prevailing prices as is.

          “lets abolish negative gearing on residential property instead”

          Ok by me. But any business venture should be treated essentially the same tax wise whether it is retail, service or manufacturing.

          No it shouldn’t. The requirim for shelter I do consider should be considered the same as enterprise, ESPECIALLY in light of the inability of customers to exert typical market forces.

          Prices are at all time highs, that should see all time high supply. It hasn’t occured, and likewise the consumer response of non-consumption is homelessness, which is not plausible.

          So, I am happy to see housing treated as a different class when it comes to allocating resources.

          If you want the same treatment on your capital as an investor, you can investment in EVERY other sector of the economy.

          Tax deductions for loss should be permitted against future profit.

          Why? Why can’t they be quarantined and offset against future capital gain?

          Incentives given where the government deems appropriate for various industries.

          Yep, residential property is not appropriate.

          The rental industry is a need as not everyone would want to buy evenif they could afford it.

          If that was the case, whith record high prices and equalised tax treatment, there’d be record houses on offer.

          That isn’t the case, therefore the assumptions you model on are wrong.

          If there was no rental industry the slack would have to be provided by way of government housing and I am certain that private rental is probably more efficient(cheaper for renters or taxpayers)

          Record high rents and low supply prove there is market failure. You might want to reassess that thesis you cling to.

          “‘Rightly passed on’… now we see what motivates the squeals”

          any investment would be made with an expectant return just like in any other business.

          Then pay a lower price and your yield with rise.

          This comes to my argument against land tax on rental properties. It is really a tax on renters not property owners.

          No, it’s a tax on the economic rents the immovable asset incurs.

          Labour can relocate, thus tax on wages can see it flee.

          Capital can seek altneratives, or flee, thus coporate tax is also discouraged.

          The land can’t go anywhere, it has to pay the tax regardless.

          Rents are determined by the renters capacity to pay, not by the aspirations of passing on costs by the rentier.

          The government is targeting the underpriveledged with this one making it even harder for them to save for a home and helping those who already have a home.

          This isn’t government policy outside of one territory. It is till to date a thought bubble, and lead in to wider taxation reform, which is likely to include reductions in income tax and company tax. Thus increasing the capacity to save.

          I am doing fine and have little need myself, Investment propertiy is hard work,

          Now you’re taking the piss. IP’s are the least amount of hard work in society.

          forex seems like taking money from the unwitting (somebody loses for me to gain) speculation in stocks seems similar to speculation in property (without the liquidity issues property has but larger fluctuations in price.)

          I think you should refine that to listed equities in today’s casino like behaviour with exchange traded shares. A majority of shares are unlisted, and it appears you are unawares of their purpose or behaviour.

          I hope that a fair way of taxing our community is developed with regard to the basic needs of people being fundamental in those deliberations.

          A LVT is the best way to go about it.

          I have children and grandchildren and look forward to them becoming home owners one day.

          Then the best way about it is to reduce home prices, and the implement the corresponding policies that push in that direction.

          “…so lets build 2 million more dwellings, then housing will be nice and affordable for thes first home buyers you care so much about.”

          That seems a sensible comment, what kind of housing do you have in mind?

          What every mix of dwellings the market chooses.

          Apartments, townhouses, 1/4 acre, small farms, whatever is demanded at a reasonable price.

          Property markets have worked quite well up until recent times, we’re not chasing some esoteric knowledge here.

          • quite a range of views you have and some seem to conflict such as

            your desire to help but also hurt others at the same time or

            the payment of land tax by investors in the hope that in the long run property values fall because less investors purchase but in the short term the rents increase because investors stay out of the market and there are less rental properties available.

            However what I think you are trying to say is a merciless crash in prices and the loss of the last passengers on board (because everyone below deck can ride out the storm)is needed

            An unrestricted land supply is required (rather than a restricted population size)with land being developed in all but a few designated locations

            Everyone will own one property because they can afford the purchase price

            Property investors are not required and the land tax should discourage them for making more investment.

            A broad based land tax will cover the costs of local sevices and infrastructure. (higher rates a bit like renting)

            No mention of government housing in the mix

            Well some points appear reasonable but the revolutionary confiscation of wealth rather that a gradual transition to lower housing costs needs to be overcome, a sustainable plan for land development needs to be thought out, and consideration to revising recent changes to building regulations that have increased the cost of building.

            Keep going with the alternative propositioning or antagonistic thinking something useful may come of it.

          • your desire to help but also hurt others at the same time or

            No, restoration of proper housing prices is may aim as it offers benefits to other segments of our society and community.

            The ‘hurt’ others feel at all is not that great a consideration, their gain is unearned.

            the payment of land tax by investors in the hope that in the long run property values fall because less investors purchase but in the short term the rents increase because investors stay out of the market and there are less rental properties available.

            Rentals won’t disappear in any large scale. The house will not implode and cease offering the utility of shelter.

            The existing owner will continue to own it, and be delivered even less of a yield. They may be incentivised to no longer own it, and the price they will receive at the point of sale will equate to what someone else is willing to offer, where the rent will cover the COMBINED cost of LVT and desired yield.

            However what I think you are trying to say is a merciless crash in prices and the loss of the last passengers on board (because everyone below deck can ride out the storm)is needed

            There has never been a bubble in history that didn’t result in prices restoring by a crash.

            This will crash, i see no point in delaying it.

            An unrestricted land supply is required (rather than a restricted population size)with land being developed in all but a few designated locations

            And it works wonders with texan property prices…

            Everyone will own one property because they can afford the purchase price

            You make it sound like a bad thing? I personally like the sound of that outcome.

            Property investors are not required and the land tax should discourage them for making more investment.

            No, it will discourage them for paying existing prices.

            A broad based land tax will cover the costs of local sevices and infrastructure. (higher rates a bit like renting)

            That’s shown to be a good thing for funding infrastructure. The volatiliy of funding is small.

            No mention of government housing in the mix

            As I said, we had good housing policy up to around 15 years ago, we have a model we can revert to.

            Well some points appear reasonable but the revolutionary confiscation of wealth rather that a gradual transition to lower housing costs needs to be overcome,

            Why, the existing structure has sen the confiscation of young peoples future wealth by older generations.

            A counter policy just restores the balance to zero.

            a sustainable plan for land development needs to be thought out,

            An LVT does that, it reduces speculative demand.

            and consideration to revising recent changes to building regulations that have increased the cost of building.

            Based on CPI, they have stayed steady for 15 years. All the price increase in housing has from the land component.

            Keep going with the alternative propositioning or antagonistic thinking something useful may come of it.

            No worries.

  14. The main advantage of a LT is that it taxes the old, non working class as well. They must be provided with a system to accru the debt, like a reverse mortgage and pay it on the sale of the property.

    Less sales, longer hold and increasing supply…welcome to the new normal.

    • what is interesting is that since we have low government debt it appears that the old have already paid (by way of taxes)for the current infastructure. This needs maintaining but there would be a large cost in rebuilding it. These assets are being passed on to the next generations.

      The older generations paid for this infrastructure and also the borrowings for the infrastructure that was build with borrowed money for their own generation to use and on top of that for the retirement of the previous generation.

      Your comments make financial sense but the cost will have been paid by the old people 3 times and the inheritance of the younger generation stolen, same as death duties.

      • I recently read a report that the US boomers will take out, in health and pensions, 3 times what they paid in taxes, so I am not sure talking about infrastructure makes much sense.

        70% of the boomers here in OZ do not want to leave any inheritance anyway. They invented SKIN remember and it is offensive to the max.

        The generation before the boomers were low in absolute numbers and did not have the lonjevity the boomers will have.

        I have come accross many boomers who think they paid tax during their working lives for their own pensions. Mad as batpoo…

        • “US boomers will take out, in health and pensions, 3 times what they paid in taxes”

          Is this possibly the current inflated cost not the real value that was paid? I remember when my pre boomer father was only paid $49.00 per week for working with the PMG (I remember it well because I lost $20.00 of it one week and copped his thong aroung my legs) but that wouldn’t pay much more than the cost of a script these days whereas the real value would possibly be equivalent to $1100 these days.

          “boomers who think they paid tax during their working lives for their own pensions”

          I guess there are a few who did not contribute enough but also a lot who saved and the infrastructure already built and paid for by the boomers supports all the other demographics for only the cost of maintenance. Not an insignificant achievment.

          All very interesting but sorry I have no idea what SKIN is so would appreciate if you can tell me.

          • the infrastructure already built and paid for by the boomers supports all the other demographics

            Boomers Don’t Build. That has been their motto. They consume what has already been built, or sell it, or borrow against it.

          • the boomers built parliament house and didn’t sell it, built hospitals and paid for several wars and the infrastructure to support the heirachy, just a shame we didn’t finish the pacific highway duplication… need to leave some experiences for the young ones.

  15. To remove the clog on purchases and even out the State revenue stream, simply allow people to pay off the stamp duty over 5, 10 or 15 years at their choice with a right to repay at any time without penalty but charging a rate equal to average big 4 variable rate loan + 1%. Or increase it and make it payable over 10 years, but give a discount for lump sum payment, just like HECS/HELP.

    But then of course the revenue falls dramatically for 5, quite a bit for 10 and somewhat for 15 years. But the state could sell the revenue stream to the banks or raise some state debt to cover that shortfall.

  16. Here is an easy way to offset the burden of a stamp duty. A house is listed for $300,000. I as the buyer offer to “buy” the house for $305,000 with the agreement that the seller will kick back $10,000 to me to pay the stamp duty on the house.

    This creates a win win situation for both the seller and the buyer. The seller moves the house at a net profit he/she likely would have gained in a normal transaction. I as the buyer do not have any of my precious savings eaten up by a tax. I will also be able to shop houses at a higher price as well because I will have much more of my savings available to qualify for a mortgage. In the end the government will get its gravy as well.

    This is a very common practice in the USA and parts of Europe to have the seller “cover” the closing costs of a home.

    When I suggest this idea to people here in Australia, people look at me like I am a criminal plotting some kind of fraudulent transaction.

    Does any one know why no one does this in Australia or if it is even possible?