Stamp Duty creep killing affordability

Via HIA:

“Stamp duty bills have increased almost three times faster than house prices since the 1980s and this trend will continue unless stamp duty is reformed,” explained HIA Senior Economist, Shane Garrett.

This result is contained in the latest edition of the HIA’s Stamp Duty Watch report which is released today and provides an analysis of state governments increasing reliance housing taxes.

“In Victoria, the typical stamp duty bill increased from 1.9 per cent to 5.2 per cent of the median dwelling price between 1982 and 2017 – equivalent to a surge of 4,000 per cent in the cash value of stamp duty. NSW homebuyers fared little better with the stamp duty burden rising from 1.6 per cent to 3.8 per cent over the same period.

“Increases in home prices cause stamp duty bills to accelerate because stamp duty rate brackets are rarely updated. This is the problem of stamp duty creep.

In NSW, stamp duty rates have not been reformed since the average house price was $70,000 (1985).

“State governments are compounding the housing affordability crisis. Total stamp duty revenues have almost doubled over the past four years: from $11.7 billion in 2011/12 to $20.6 billion in 2015/16 – most of which is likely to have come from residential building.

State governments are now more reliant on stamp duty revenues than at any time for a decade. This trend will continue unless state governments recalibrate their taxes on housing.

“State governments are increasingly reliant on rising stamp duty revenues. This situation is not sustainable.

“The stamp duty burden is increasing under every metric: nominal dollars, real dollars, as a proportion of dwelling prices and as a share of total state revenue. Without reform, this trend will continue.

“By draining the pockets of homebuyers to the tune of over $20 billion each year, stamp duty is a central pillar of the affordability crisis. A long plan to do away with the scourge of stamp duty would be a huge victory for housing affordability in this country,” concluded Shane Garrett.

Now, now, as we know, it’s all part of the plan. Massive stamp duties support infrastructure spending to accommodate huge immigration flows that boost house prices and…stamp duties…until you hit peak debt.

It is slow motion economic suicide via hollowing out, kills wages, marginalises youth and massively increases inequality but it works for the pollies and their mates.

MB supports reform to an alternative progressive land tax regime.

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Comments

  1. Stamp duty is a truly grotesque tax. It actively encourages people not to move and, increasingly relevantly, older people not to downsize.

    I’d also suggest that it encourages people not to buy too early in their life as they will just burn more cash if they later need to upsize.

    • We looked to downsize to 5 acres + pool + newer house but I refuse to pay the stamp (we’re in our stamp-except first home)

      • Your experience points to an interesting psychology of stamp duty. The economic incidence of stamp duties fall on the vendors, yet the legal incidence fall on purchasers (proof is that prices paid by buyers would increase to cover the stamp duty paid by vendors — buyers already factor it into their total purhase price).
        An economist wouldn’t care whether vendors or purchasers paid for stamp duty (preferably neither), but there may be efficiencies in having vendors pay the tax on settlement.
        We need the ACT (or some other reform minded jurisdiction) to run this experiment so the other jurisdictions can see if it works or not.

  2. So it all hinges on ongoing growth in private sector debt which has been supercharged for a decade and perhaps now we approach the reckoning…I mean who could have seen that coming?

  3. Why not raise the minimum legal price for installing bricks (to $2 per brick) and hand washing sedans (to $50 per sedan).

    Heck, even mandate that 50% of new houses must have floor heating. What you want to happen is the price (quality) of houses to go up and the price of land to go down. If people are required to install floor heating and rainwater tanks, they have less money to bid up the price of land.

      • What about asthmatics?

        My point was the last sentence – “If people are required to install floor heating and rainwater tanks, they have less money to bid up the price of land.”

        Take a house and land package being sold for $600k with $300k of that being for the land. Would it not be better if the house cost $400k and the price of land is $200k?

        The nutty Greens, ALP, and LNP still get to have bloody expensive houses – but at least bricklayers get paid more (due to the new minimum legal price for laying bricks) and houses are better quality by being required to install fibre to the curb and floor heating.

  4. If we got rid of stamp duty how would our government be able to afford to build new stadiums for people to not go to, or move museums from one side of town to the other, or replace railway lines with incompatible rail lines, or build toll roads people can’t afford to use etc?

  5. State Governments are hooked on stamp duty revenue but what replaces it? A revamp of GST with no exemptions and a state redistribution based on population? A land tax on investment properties? Or a general across the board land tax (which means that many people who have paid off their homes and are either SMSF funded or on govt. pension will in the majority of cases not be able to afford an annual land tax).? Any ideas anyone?

  6. Stamp Duty is one thing, how about the other tax for investors, land tax and now in Vic, absentee tax?

    In VIC, 2.25% of amount > $3,000,000 for investors, ouch.

    I wonder will the govnuts with apply it to PPOR’s?

    • Jeff Kennett got rid of Victoria’s Land Tax on PPoR’s back in the 1990’s. From memory it was for unimproved land values of over $1.5 million (or something like that), so it was effectively a tax exemption for a small handful of residence in Toorak and South Yarra.

  7. The Property Council of Australia is a major and powerful lobby group for massive immigration into Australia.
    To the extent that this massive immigration intake has required government spending on new infrastructure, then i’m happy with the stamp duty payments as they are, stamp duty is reasonable as a percentage of the house cost, the problem is the massive rise in house prices which is driven by the massive immigration the insatiable elites and the rent seeking HIA keep advocating.

    Never, ever allow a broad based land tax in as a replacement for stamp duty.
    A new tax, a land tax on every home in Australia will become a massive revenue raiser for government and keep upward pressure on house prices, perfect for the property industry.
    Mark my words, it will go up every year, with every budget, all home owners will be stuck with a brand new massive tax.
    Never, ever, allow this rent seeking travesty to take place

    • A few days ago, I walked by a bakery that says “cash only”. If land tax is put in, the shops will not be able to get away with paying no tax.

      A coal tax and tap water tax would be hard to avoid as well.

    • Land tax is a counter balance to land values going through the moon and a deterrent to land banking. Most people only need 1 dwelling to live in and perhaps a holiday home. If people want to invest in property, they should be focused on rental yield not speculative capital gains.

      If you want a tax exempt investment try Classic Cars…

      • I have no problem with a land tax on vacant land … that is already the case.
        I have no problem with a land tax on an investment property either … though it’s likely tax deductible against wage income, so less pain there.
        Stay away from the family home .. that was my point.

    • Patrick is a paid-for astroturfer. Comment should be ignored. (if he’s doing it for free, then the question is why do yourself such a disservice?)

    • Most jurisdictions have stamp duties on transfer of cars (i think).
      Same with insurance policies. Imagine that, disincetivising people from insuring their assets. Beyond stupid.

      • I think KPMG did an analysis a few years ago which showed that the only thing that is taxed more than home insurance policies (taking into account things like SD, Fire Levy, GST etc) is cigarettes.

      • Fire Levies are largely off insurance nowadays (and are effectively raised via a very broad based land tax, in Victoria at least), but your point still stands.

  8. ““In Victoria, the typical stamp duty bill increased from 1.9 per cent to 5.2 per cent of the median dwelling price between 1982 and 2017 – equivalent to a surge of 4,000 per cent in the cash value of stamp duty. NSW home buyers fared little better with the stamp duty burden rising from 1.6 per cent to 3.8 per cent over the same period.”

    That’s right folks – your friendly state government is now taking 2-3% extra of the purchase price of the property in stamp duty then they used to! A huge revenue stream for state government,

    In 1998 – In Victoria, stamp duty only accounted for 11% of the states revenue, and now it accounts for nearly 30% of the states revenue.

    A downturn in property turnover (even if prices remain static) runs the risk of putting a huge big black hole in all state governments pockets. Once the downturn starts, the states will be running to Canberra for a GST increase of at least a further 10% to compensate.

    *link/follow my page for daily political, economic and current affairs insights*
    https://www.facebook.com/adifferentview.australia/

    • Victoria’s current stamp duty system was designed for the 1980s property market, and has not seen any substantial reforms since. Back then, the vast majority of transactions occured below $100k, where the tax rates were negligible (and the revenue was used to run the admin of the transaction). Bracket creep has created a revenue raiser.

      Take a look at Victoria’s historical Land Tax rates. They’ve consistently handed back bracket creep to high-end landlords, especially during the land boom of the early 2000’s.

  9. State governments have come to depend on stamp duties to support spending programs. Tax reform is needed but would be opposed more strongly by the potential losers than it would be supported by the potential winners. A downturn in housing prices might reduce stamp duties and spur State governments to introduce land taxes but it is unlikely to be accepted quietly, at least by the majority of people who are not buying and selling houses.

    • Bingo. Youngsters support abolishing it because they dont want to be slugged $50k to buy a suburban shack. Oldies down want land tax, because they own all the land.

      The reason why nothing changes is because stamp duty relies on the ~5% of properties that change hands every year. Small tax base, who happen to pay a lot. Although spreading the pain across 100% of land owners would be more efficient/equitable/preferable, you’re slighlty increasing the tax bill for 95% of people so that 5% can get a large tax cut.

      Politics 101

    • A land tax can be put on foreigners – they can not vote. It should also be put on 2nd properties, so if an Aussie owns 2 plots of land – he needs to pay land tax on the 2nd plot.

      A land tax can also be put on plots of land that are purchased after 1 July 2018 onward. So the muppets who already own land need not pay land tax.

      • Foreigners already pay land tax, and more than locals. Investment properties already pay land tax (except in NT, where they dont have one).
        Imposing land tax on only those properties purchased after July 2018, grandfathering the rest, will mean that it takes a minimum 30-40 years for the tax to become broad based (only about ~5% of properties change hands in any given year). It’ll barely raise any revenue in the short-term. Grandfathering is popular amongst incumbents, because they pay zero tax (which is not too different with our existing reliance on stamp duties). It’s unworkable.