Is stamp duty facing the axe in Australia?
Stamp duty on property purchases has been identified as a key barrier for those looking to acquire their first home or downsize.
Of all the taxes people pay, stamp duty on property purchases is one of the most hated.
With a price that bears no resemblance to the actual cost of “stamping’’ a property transfer and a payment tax scale that was formulated when a million-dollar house could only be found in the very poshest of suburbs, for many the end of stamp duty cannot come fast enough.
However, you have to be careful what you wish for because should stamp duty be phased out, it would most likely be replaced by a form of land tax, which would apply every year and would certainly not be welcomed by many who were forced to pay on the drip feed every year.
Two treasury secretaries want to axe the tax
No fewer than two former federal treasury secretaries have now united to call for the abolition of stamp duty in favour of a land tax from which most farming land and all existing home owners would be exempt.
Ken Henry and Martin Parkinson both appeared at a conference at NSW Parliament to discuss federal and state finances, which is part of a review being conducted by former Telstra chief executive officer, David Thodey.
Dr Henry told the conference that the stamp duties levied by state governments on property purchases create an unfair hurdle for young aspiring homeowners.
Stamp duty a disaster for first home owners
“It’s a big obstacle for first home buyers – saving for the deposit and then saving for the stamp duty – it’s just nuts,’’ Dr Henry said.
‘‘Particularly in Sydney, it’s a massive bill they’ve got to pay.
“If stamp duty were abolished and replaced with an annual land tax, of course, over a 15-year period – or whatever it is – they’ll end up paying the same amount. But they don’t have to come up with all the cash up front.”
Already the ACT has moved to phase out stamp duty and replace it with annual land tax bills but all other states and territories are sticking with stamp duty for now.
Dr Henry’s successor as Treasury secretary, Dr Parkinson, also backed the call to abolish stamp duty and replace it with land tax.
“I’m already on the record as suggesting we do that,’’ said Dr Parkinson.
Henry review wanted to eradicate stamp duty a decade ago
Dr Henry’s landmark tax review that was released but widely ignored a decade ago also recommended abolishing stamp duty in favour of an annual land tax.
Dr Henry said doing that would not only get rid of many “distortions” created by stamp duties but also help to put state finances on a more sustainable footing.
“Ten years ago, when we looked at the various taxes in the federation , stamp duty stood out then as being the worst, for a whole host of reasons,” said Dr Henry.
“It doesn’t make sense to tax transactions per se – and that is, of course, what stamp duty does.
It’s a bad tax that distorts the market
‘‘It creates all sorts of economic and social distortions: people being reluctant to sell their property and buy a property that makes more sense for them because they’re in a new stage of their lives, for example.
Dr Henry said stamp duty was also a big revenue item in the budget, which exposed the budget to a lot of volatility due to sharp rises and falls in property values and transaction levels.
He said abolishing stamp duty was worth doing whether the property market was booming or not.
“It’s just a bad tax,’’ he said.
‘‘I think the economic argument for making the investment is going to be strong no matter what time of the cycle. Best just to get on and do it.”
Land tax would apply to higher value properties
As for design, Dr Henry said the new land tax should apply to a broad base of properties, but should exempt low value land and apply higher tax rates incrementally on higher valued land.
“Like the income tax system, there would be a progressive rate scale and that would mean that most if not all farming land, for example, would not actually pay any land tax because the value of the farming land per square metre would be too low to attract a tax,” he said.
Dr Henry said the tax switch should be phased in, so that existing property owners – who had already paid stamp duty – were exempt from paying the new land tax until their next purchase.
At the moment, most states and territories only apply land tax to second properties such as investment houses and holiday homes once they reach a certain value so adding land tax to owner occupied properties could be politically difficult and controversial.