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?
It’s madness.
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?
Jarad says
I live an invest (not wholly) in Tasmania and while the stamp duty burden isn’t too high here due to the low median prices, it is still a tax that limits activity. If we as a state removed stamp duty from the equation and reworked the tax system to be cater for it in other ares, it would be a real boost to a lack luster economy. We are just small enough to possibly make these kind of changes sooner rather than later…
Aaron says
That would be a great way to make Tasmania more competitive than the other states. Combined with some job creation, that could potentially attract a raft of young people wanting to buy a first home and raise a family. Which would be huge for long-term growth in Tasmania.
Jarad says
Good point Aaron. My kids are one of the BIG reasons that we live down here. Launceston is often quoted as the best city in Australia to raise a family (http://www.smh.com.au/national/smaller-cities-most-liveable-for-families-20130115-2crlk.html) and if you added some economic development and took advantage of the advantages we already have, we would never look back.
Guest says
http://www.smh.com.au/national/smaller-cities-most-liveable-for-families-20130115-2crlk.html
Jarad says
Good point Aaron. My kids are one of the BIG reasons that we live down here. Launceston is often quoted as the best city in Australia to raise a family http://www.smh.com.au/national/smaller-cities-most-liveable-for-families-20130115-2crlk.html and if you added some economic development and took advantage of the advantages we already have, we would never look back.
John G says
Suggest you be VERY careful about even hinting you don’t mind taxing pollution. Remember all of us exhale Carbon dioxide & some will thereby try to reinstate the Carbon tax.
Our problem is that the lower our education standards become the stupider the electors & law makers become. I fear Western Civilisation (at least) is in a death spiral.
nobody says
……………And I always thought capital gains tax was the problem.. Hmmm
P T M says
Maybe first home buyers and principal place of residence sales should be exempt from stamp duty, but investment properties stay the same….. that would address the concerns raised in this article would it not? 😉
Jon Giaan says
it’d definitely be a start. But remember investors also contribute to supply, either buying new houses, or making substantial improvements to existing ones…
P T M says
Maybe this article should have been written on No BS Friday instead of today, so that the real agenda is discussed (investors) and not smoke screened behind false concern for FHB, commuters and the elderly? 😉 Just calling it like I see it and btw I don’t have a problem with investors and the role they play – I am one.
P T M says
Maybe stamp duty can be removed if negative gearing is removed. That would also help first home buyers, mobility of home owners and elderly people. 😉
PAS says
The introduction of the GST back on 1 July 2000 was supposed to coincide with the elimination of Stamp Duty – a State imposed tax. GST revenue was supposed to go the State Governments – and does – so State Governments have beef effectively double dipping on the tax system for the last 14 years!
Googled says
I would buy more if stamp duty was abolished.
David Hunt says
Having bought a place in Victoria – its stamp duty is very bad – even worse than NSWs. So this is like a Jeweler/ Persian Carpet seller – mark up to discount. Victoria has one of the biggest Nanny states with strong and insanely terrible union presence eg CFMEU in the Wonthaggi Desal plant and Electricity inspectors who travel 150 kms to inspect a power point install and badger the sparkie. So I guess this is a positive step reducing the supply of money to public servant oxygen thieves
Simon says
Robin Hood robbed the rich, because that was where the money was,
Stamp duty is taxation without representation, because we get nothing of value to offset the money they’ve taken, no new speed camera’s, no new parking inspectors, no new govt. ‘think’ tanks, no new ‘blue poles’ paintings for our elite to look at, no new arts grants, or other things society really wants and needs, just into consolidated fund, for the huge administration of our beyond bloated govt.
We need a soft revolution, that applies the free market and democracy to govt.
1) do we want it?
2) can we get it cheaper? our manufacturing goes overseas over 10% margins, but govt. services cost 100’s of times what we could outsource them for.
Govt. needs to be forced to live within it’s means, within what society is willing to pay for it, they’ve never asked us if it’s ok for them to waste our money,
Vern Silver says
Historically the govt only removes a tax system if they have something in place that will generate more income for them… income from our pockets. Remember the Govt is an internationally registered corporation (as is Australia) – it’s a freaking business and they are trying to make more money from this business. They can get rid of stamp duty but i’d be scared of what will come in to replace it?
Perhaps a tax on breathing. A tariff on owning money? A fine for not buying enough stuff?
Jayden says
Better to get bitten once for a long period of time than be zillion times over and over.Tax stalemate.
brett duck says
As Pas says GST was promised to replace all taxes a
nd also be legislated in law to not add gst to a tax (like GST on fuel excise but that’s another issue ! ) ., The Victorian Government are extra greedy as they also tax options contracts on property thus causing me to only invest in shares. Yes double dipping on shares occurred for a while also after the GST was introduced buy charging stamp duty on shares and GST for about 12 months. Do not remember getting a refund on the double taxation there either.
I am counting the days down to the Victorian state election !
Hey Vern they just removed the tax on Heat (beatles reference Song taxman)