The Victorian Chamber of Commerce & Industry (VCCI) has recommended the Victorian Government follow NSW’s lead and abolish stamp duty in its upcoming 2021 Budget.
CEO Paul Guerra says that switching to a broad-based land tax regime will provide greater revenue certainty for the government while reducing the cost burden on home owners:
Now is the ideal opportunity for structural change to the revenue base. Victoria should switch from stamp duty to a broad-based land tax. This will activate significant economic growth and importantly remove an inefficient and market distorting tax…
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Stamp duty tax reform: follow NSW and the ACT and switch stamp duty for land tax for all property purchases to improve efficiency and remove a market distorting tax.
VCCI’s recommendation follows the Housing Industry Association’s (HIA) recent media campaign calling for governments to replace stamp duties with a “more stable, efficient and equitable tax”.
HIA Chief Economist, Tim Reardon, argued that stamp duty is “universally recognised as one of the most inefficient and inequitable taxes that does not provide a stable revenue stream” and believes that “the case in favour of reforming stamp duty is so strong” that it doesn’t matter whether governments choose a phase-out method or ‘opt in/out’ arrangement, just “as long as stamp duty is abolished”.
You will get no argument from me. I have been stung twice by Victoria’s stamp duty regime, which is the most punitive in the nation, costing the typical house buyer around $40,000:
Victoria’s average rate of stamp duty is also the highest of all Australian states at 5.21%:
The arguments for shifting from stamp duties to a broad-based land tax can be summarised as follows:
- Mobility: Abolishing stamp duty would encourage people to move to homes and locations that best suit their needs.
- Efficiency: Allowing households to move where they want to live means more efficient allocation of public investment in transport infrastructure, land and health care resources. Moving to a broad-based land tax would also encourage a better use of land by discouraging land banking and vagrancy.
- Equity: it is unfair for buyers of the circa 5% of homes that turnover each year to pay punitive taxes to fund services provided to the other 95%. It would be much fairer to share the load via a broad-based land tax.
- Revenue stability: because stamp duties are a function of both dwelling values and sales volumes, they are highly volatile and experience large booms and busts. Land taxes, by comparison, are far more stable.
Reflecting the above, the Australian Treasury’s Tax White Paper concluded that property stamp duties are one of the least efficient taxes in Australia, whereas land taxes are the most efficient source of tax.
In fact, land taxes create positive welfare gains to the resident population they are also levied on non-resident property owners (see next chart).
The problem with replacing stamp duties is political: no government in Australia is more addicted to stamp duties than the Victorian Government, which necessarily makes reform more difficult.
Hopefully its upcoming state budget will bravely follow NSW’s reforms and give buyers the option of paying land taxes instead of stamp duties.