Core Logic-RP Data has released an interesting analysis of the Australian Bureau of Statistics’ (ABS) government taxation statistics for the 2014-15 financial year, which shows that the states continue to feast on stamp duty, which has shown phenomenal growth since the property bubble kicked-off in 1999:
In the 2014-15 financial year, state and local government taxation revenue was recorded at $89.278 billion having increased by 7.0% over the year. The taxation revenue was comprised of $45.203 billion or 50.6% from property. While total tax revenue increased 7.0% over the year, property tax revenue increased by 10.5% highlighting that property taxes are the largest source of taxation revenue for state and local governments and are rising at a rapid pace.
Interestingly, since the 1999-00 financial year, total state and local government taxation revenue has increased by 103% compared to a 150% increase in property taxation. Again, this highlights the importance of property taxes for these two levels of government…
The two largest sources of tax are: stamp duties on conveyances and municipal rates which account for 40.8% and 35.4% of total tax revenue respectively. The only other significant source of tax revenue is land tax accounting for 14.8% of revenue. Over recent years the value of taxation revenue from municipal rates and stamp duty has increased substantially while land tax increases have been limited. The fact that stamp duty is now the greatest source of tax revenue for state and local governments must be of some concern. This is due to the fact that it is a tax on transactions unlike municipal rates and land tax which are taxes on the property. Transaction taxes are entirely reliant on the market and while they surge when values and transactions are rising, when either or both fall this source of revenue drops significantly (see 2008-09).
As shown in the next table, all jurisdictions have made out like bandits from the surge in stamp duty revenues since 1999:
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However, the Victorian Government has been the biggest “winner” of the major states, with stamp duties rising an incredible 291%, whereas out of the smaller jurisdictions the NT has had the biggest windfall, with stamp duty revenues surging by 679% over the same period.
As I keep pointing out, the states’ heavy reliance on stamp duties is problematic on several fronts. First, it is one of the most distorting and inefficient taxes going around. Second, since it is dependent on both values and transaction volumes, stamp duties are inherently volatile and prone to ‘boom and bust’ cycles in revenue.
Accordingly, state budgets are vulnerable to any sharp downturn in property markets, which is a particularly big concern for the Victorian and NSW Governments, whose property markets are in clear “bubble” territory.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
