Forget Stage 3. Start here.
How can we do tax better?
This seems to be the question of the moment. Labor has rolled back the Stage 3 tax cuts, and the Greens want to limit negative gearing. It’s all going on.
But, I do wonder if we’re kind of missing the point.
Because if it were up to me (and really I don’t know why more things aren’t), income tax and negative gearing aren’t where I’d be starting. They’re not the low-hanging fruit here.
So what should we be going after?
Stamp duty.
Stamp duty is a generally stupid idea. Why do we want to discourage people buying and selling houses?
But not only is it stupid, it’s getting increasingly expensive.
Recently economists at e61 calculated that stamp duty has become five times as expensive as it was 40 years ago.
The stamp duty burden has risen fivefold in just one generation, becoming an impost that holds back people from moving, changing jobs and even having children, new research by e61 Institute and PropTrack shows.
Even after adjusting for inflation, the hefty increase in the property transfer duty levied by state and territory governments now equated to five months of income for an average full-time worker, said e61 research manager Nick Garvin.
In Melbourne, where stamp duty costs have grown the most, buyers needed the equivalent of six months of average full-time post-tax income, or $42,500, to cover stamp duty on a median-priced home. That equates to a six-fold increase from the mid-1980s.
This was followed by Sydney, where stamp duty for a median-price home recorded a five-fold increase, up by $44,500 or half a year’s income.
“Housing costs comprise more than just stamp duty, but five months of take-home income is a sizeable cost,” Mr Garvin said.
“Particularly so for owner occupiers that move, who can pay for the new home by selling the old one, but incur stamp duty on top.”
The findings are the latest piece of evidence against the tax that economists and property experts say holds back the economy, but upon which state governments rely heavily as a source of revenue, especially in times of booming housing markets.
And that’s the rub isn’t it?
It’s become a huge money-pot for the State Governments, and the state governments are very reluctant to give it up.
Even though they’ve been flirting with it for a while. The ACT has been talking about it for 20 years, and it seemed like they were on the way to getting rid of it, but now it’s not looking like such a sure bet.
The NSW Liberal government was also talking about getting rid of it, but Labor has since walked it back.
Victoria and SA have introduced plans to scrap it on commercial property, but not housing.
It’s good politics – everyone likes it and no one’s really worse off. And it’s good economics – economists generally agree that creating friction in the housing market doesn’t help anybody.
But the state governments just can’t turn their back on all that money.
Maybe it’s time.
JG.