Encouraging news from Victoria last week. They’ve extended stamp duty concessions to first home buyers. Stamp duties are one of the most stupid taxes on the planet, and if this news places stamp duties on death row, execution day can’t come around quick enough.
Amid all the celebrations and industry sponsored drinky-poos in Canberra with the death of the carbon tax and the minerals resource rent tax, there slipped another bit of tax reform that could really be a show stopper…
And could have a much bigger impact on your back pocket!
And that was the news that the Victorian government was upping the Stamp Duty concession for First Home Buyers. First Home Buyers will now receive a stamp duty discount of 50%.
Half price stamp duty? Have they gone crazy, crazy, crazy?
The state government reckons that eligible home owners will save up to $15,535 in stamp duty on dwellings valued up to $600,000, and that this measure will save 26,000 Victorians a total of $200 million over the next year.
(Victoria has also announced a $10,000 grant for newly constructed homes. They must be worried about the construction industry… or is there an election coming?)
So 15 grand for first home buyers (25K if they’re buying a new home) isn’t nothing. It’s not enough to really shake a market, since FHBs only make up about 10-20% of the market, but it will help cement a floor under prices in Victoria.
So why does it matter for you?
Well, maybe I’m seeing this through rose coloured glasses, maybe I’m just seeing what I want to see, but I reckon this could be the beginning of the end for stamp duties.
The writing’s been on the wall for ages. Stamp duty is one of the stupidest taxes we have. Few taxes succeed in being so economically disruptive and socially backward.
Right now they’re a huge impost on buying and selling homes. HIA figures show that the typical home buyer in Victoria is hit with a $24,100 stamp duty bill (the highest in the country). In NSW and WA it’s up around $20,000, and in most of the other states its around $15,000 on a median home.
HIA reckon that Queensland is the outlier, where stamp duties ad at least 3% to purchase costs.
Queensland – The Smart State.
Now I can understand that governments need to raise money. There are some things that it is just better to try and do collectively, rather than individually.
But if governments are going to impose taxes, they have a duty to do it in such a way that minimises social disruption and market distortion.
Because a tax on an activity increases the price of that activity. The higher the price goes, the less we want to do something.
That can be used to good effect. Taxes on cigarettes or pollution for example can help reduce those things, if that’s what you want to do.
But there are some things you just don’t want to discourage. Like payroll tax. Why on earth would you put a tax on creating jobs and employing people?
And why on earth would you put a tax on buying and selling houses? Why would you want to stop people doing that?
For the new home market, it discourages the construction of new homes by making the whole process of buying a new home more expensive. Dumb idea when there’s still a chronic shortage of suitable housing, especially at the entry level.
It also forces people to stay put much longer than they want to, or is efficient.
Say a retiree couple are thinking of downsizing from their large home in the suburbs, to a more manageable townhouse. A young couple with two young kids is stuck in an inner city town house, and dreams of a bigger house in the suburbs.
A stamp duty hits both of them. As a result, the old couple has an incentive to stay put, and avoid the stamp duty associated with pulling up stamps and relocating elsewhere. They end up staying in that big suburban house, and our young family misses out.
Or maybe you get a new job on the other side of town. Rather than selling up and taking on a place closer to work, the stamp duty creates a disincentive to move – and so maybe you end up commuting instead – adding to congested roads and pollution.
As well as wasting an hour or two of your life in traffic each day.
You hear it so much it’s a cliché, but if owning your home is the great Australian dream, and is so important too us, why are we messing with the market like this? Why are we creating so many barriers to buying and owning?
So the writing’s on the wall and the wall is starting to crack. The news about Victoria giving ground comes after the ACT government announced that it was phasing out stamp duties over the next 20 years.
My bet is that as more and more people wake up to what a stupid thing stamp duties are, especially for how they hold the construction industry back, more and more state governments will throw the monkey from their back.
But you never know. Alcoholics are always alcoholics. State governments will always be addicted to the massive revenue hits that stamp duties give them.
Stamp duties currently account for about a third of total state tax revenue every year.
That’s huge. Going cold turkey on a dose like that just isn’t possible. That’s why the ACT is giving themselves 20 years.
So it hangs in the balance. If there’s one thing I’ve learnt about Australian politics, it’s that dollars often trump sense.
But my bet, maybe my hope, is that stamp duty is already a dead man walking.
So what do you think?
Would you buy more real estate if there were less (or no) stamp duty?
Would you be happy to pay tax in other areas to compensate?
Is it realistic to think that it will ever disappear?