HIA: replace stamp duties “with alternative broad-based tax measures”

The Housing Industry Association (HIA) has issued a media release demanding that stamp duties be replaced with “alternative broad-based tax measures”:

“Replacing stamp duty with a more predictable and equitable tax would provide state governments with a more reliable source of revenue,” explained HIA Chief Economist, Tim Reardon.

HIA’s Stamp Duty Watch report, released today, reviews the latest developments around stamp duty across Australia’s eight states and territories. Stamp Duty Watch is a comprehensive regular review of policies in the states and territories around Australia.

“State governments have become increasingly dependent on stamp duty revenues. Stamp duty is an unreliable source of revenue and the increased dependence makes states heavily susceptible to housing market downturns,” added Mr Reardon.

“In NSW the downturn in the property market is forecast to cost $10.6 billion in lost revenue over the forward estimates. In Victoria where the decline in house prices has been more modest, revenue from
stamp duty has been revised down by $5.2 billion.

“This sharp drop in revenues highlights the vulnerability of state budgets.

“In 2018/19 stamp duty revenues made up over one-fifth of all taxation revenue raised in New South Wales, Victoria, Queensland and Tasmania.

“Victoria has the highest dependency on stamp duty revenues closely followed by NSW. The ACT, which is seven years into an ambitious 20-year tax reform program to replace stamp duty, has the lowest dependence on stamp duty. It makes up only 13 per cent of total taxation revenue.

“Alternative broad-based tax measures could deliver a more consistent and reliable revenue stream,” concluded Mr Reardon.

You’ll get no disagreement from me. The states have become overly reliant on stamp duties for revenue, as illustrated in the below charts from the ABS:

However, because stamp duties depend on both dwelling prices and sales volumes, they are highly volatile and experience boom/bust conditions, as illustrated by the below chart for NSW:

The logical choice for shifting state tax bases away from stamp duties is to replace them with a broad-based land value tax.

The Australian Treasury has already shown that stamp duties on real estate are one of the least efficient taxes going around whereas land taxes are the most efficient source of tax available, actually creating positive welfare gains to the domestic population since non-resident home owners are also taxed (see below chart).

ScreenHunter_6774 Mar. 30 10.24

The Henry Tax review came to similar findings. As has the Productivity Commission.

The HIA’s Dr Harley Dale has previously called for the exchange of stamp duty for land tax – a stance that deserves applause – and re-statement by Tim Reardon.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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