Yesterday morning, we argued that the Andrews Labor Government “has set Victorians up for a Budget emergency” due to the exorbitant pay increases granted to public servants, which is about to run head first into crashing stamp duty receipts on the back of falling dwelling values and crashing prices:
Yesterday evening, the Victorian Treasury released its Pre-Election Budget Update, which revised down stamp duty receipts by $2.4 billion “flowing from the effect of the current moderation in prices and volumes in the residential property market”.
However, the projections remain highly optimistic, if not deluded:
…land transfer duty revenue is forecast to decline by 6.8 per cent to $6.5 billion in 2018‑19 and grow by only 2.1 per cent in 2019-20. Growth in land transfer duty is expected to average 3.5 per cent each year over the forward estimates. This forecast reflects a weaker outlook for the residential property market in the near term, coinciding with lower auction clearance rates, tightening credit conditions, moderating property prices and transaction volumes, and out-of-cycle mortgage rate rises…
The below charts highlight the idiocy of the stamp duty projections:
As you can see, the projected stamp duty decline in 2019-18 is only 5% before recovering in the forward years. This pales in comparison to the 2008-09 (-24%) and 2011-12 (-14%) declines, which came off only minor corrections in the housing market.
Given the unprecedented size of this bubble, Victorian stamp duty receipts could easily slump by more than 30% this time around.
Indeed, WA offers a valuable insight about how far stamp duties could fall, given it has experienced a prolonged housing slump:
Actual stamp duty receipts peaked in WA in 2007-08 at $2,243 million, but have slumped to $1,497 as at 2016-17 – a 33% decrease (obviously much worse after inflation):
Applying the same kind of correction to VIC implies a revenue decline of around $2 billion per annum in VIC, a write down of $8 billion.
Can’t have that with an imminent election!