How state governments plundered house prices

CoreLogic has produced an interesting analysis of the rivers of gold flowing to the states from Australia’s property bubble, whereby the tax take has doubled in just 11 years:

Over the 2016-17 financial year, state and local governments collected $52.5 billion in taxes from property with the figure climbing by 5.9% over the year.  The taxation take from property is now more than double what it was in 2005-06.  Property taxes accounted for an historic high 52.8% of all tax revenue for state and local governments, up from 51.9% over the previous year.

Property taxes are broken down into two broad types, taxes on immovable property and taxes on financial and capital transactions. Taxes on immovable property include: land tax, municipal rates and other smaller taxes. Taxes on financial and capital transactions include predominately stamp duties as well as a few other smaller taxes. Taxes on immovable property were recorded at $29.185 billion over the year with the remaining $23.338 billion being taxes on financial and capital transactions. Over the year, taxes on immovable property increased by 7.9% while taxes on financial and capital transactions increased by 3.6%…

Between 2006-07 and 2016-17, stamp duty revenue in NSW has increased by 115% and it has increased by 114% in Vic. Revenue from land taxes have doubled over the period in Vic (153%), Qld (123%) and WA (125%) while revenue from municipal rates has doubled over the period in WA (125%) and ACT (184%).

In NSW, stamp duty revenue accounted for 49.1% of all property tax revenue in 2016-17 up from a recent low of 32.3% in 2008-09. It is a similar story in Vic where stamp duty revenue accounted for 42.6% of property tax revenue, up from a recent low of 36.5% in 2012-13. The cyclical nature of housing market transactions makes stamp duty a volatile source of revenue for state governments. Another way to look at this is in WA where the housing market has been weak for a number of years, stamp duty revenue accounted for just 28.5% of all property related tax revenue in 2016-17 down from a peak of 54.5% in 2007-08.

From here, we are now seeing the combined effect of dwelling values and transaction numbers falling in Sydney and Melbourne along with a number of regional areas of NSW. Both the NSW and Vic governments have benefitted substantially from stamp duty revenue over recent years and it now appears set to fall over the coming years as the housing market weakens after a number of years of surging values.

As noted by CoreLogic, both the NSW and VIC State Government’s have made out like bandits from stamp duty over the past 11 years.

Here’s the chart for NSW, where stamp duty receipts have only just begun to fall:

And here’s a separate chart for VIC, with State Budget projections in red:

Stamp duties are an inherently volatile source of revenue since they are impacted by both transaction volumes and prices:

For example, stamp duty receipts fell by 24% in 2008-09 and by 15% in 2011-12 in VIC off only minor corrections in the housing market.

Given the monumental size and duration of this boom, the hangover as the housing market corrects could be painful and drain potentially billions from both the NSW and VIC Government’s coffers.

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