From Property Observer today comes news that the Federal Government is lobbying the states to cut stamp duties payable by seniors when they downsize to smaller homes:
The federal government has called on state governments to introduce stamp duty concessions for seniors to help encourage them to downsize.
Federal ministers Jenny Macklin and Mark Butler released a joint statement announcing the $112 million pilot scheme to encourage seniors to downsize and calling for stamp duty concessions to make it work.
“We would also like to see state governments move to assist seniors who wish to downsize by introducing or improving concessions on stamp duty, and therefore removing a further impediment to downsizing,” they said.
The federal budget announcement on Tuesday included a scheme to make it easier for pensioners to downsize their family home by excluding any profits from means-testing for the pension.
Those eligible will be able to invest up to 80% of the net gain from downsizing, up to a limit of $200,000, in a special account which is excluded from means testing for 10 years.
The scheme has been cautiously welcomed by representative bodies but they say that stamp duty remains the biggest impediment to downsizing for seniors.
Groups say stamp duty costs are prohibitively expensive and make downsizing an expensive choice even with this scheme.
As regular readers will know, I am strongly oppose stamp duties on equity and efficiency grounds. One of my biggest concerns around stamp duty is that it discourages housing turnover by unnecessarily penalising people that move to homes that better suit their needs. As such, stamp duties inevitably lead to an inefficient use of the housing stock, such as empty nesters occupying large homes with multiple spare bedrooms, or young families cramming into small apartments.
That said, I cannot support abolishing stamp duties for seniors only, whilst continuing to penalise young families upgrading to more suitable accomodation. Such age-based measures will unfairly shift the tax burden even further onto the younger generations, burdening the very segment of society (young families) that are arguably already under the most strain financially.
A more efficient and equitable solution would be to abolish stamp duties altogether, replacing them with a broad-based land values tax levied on all homes.
As argued previously, a broad-based land tax would assist in the provision of housing via a number of channels. First, a land tax would help make infrastructure investments self-funding for governments, since any land value uplift brought about through increased infrastructure investment (e.g. new roads, trains, etc) would be partly captured by the government via increased land tax receipts. Accordingly, governments would be more likely to facilitate development, rather than act to restrict it in a bid to save on infrastructure costs. Second, a land tax would penalise land banking and vagrancy, effectively increasing the supply of land in the process and bringing new homes to market more quickly. Finally, by removing stamp duty on all housing transactions, people would be free to move to homes that best suite their needs.
Transitional issues could be overcome by crediting all landowners with the amount of stamp duty paid and then deducting the hypothetical land tax they would have paid since the date of purchase (thus avoiding double-taxation of people that recently paid stamp duty). Asset rich, cash poor, retirees could also be permitted to accumulate their land tax liability, with the bill payable upon death (via the estate) or once the house is eventually sold (whichever comes first), with interest on outstanding tax debts incurred at the same rate as HECS.
If the Government is truly seeking to drive more efficient use of the housing stock, it should be looking to abolish stamp duties altogether in favour of a broad-based land tax, rather than implementing policies that benefit one segment of society (older retirees) over another (young growing families).
