Calls for scrapping of stamp duty grow louder

posted by:  Gabrielle Gesti

post date:  April 8, 2016

category:  News

stamp duty

Source: API  www.apimagazine.com.au

There are calls for the abolition of stamp duty to be a central part of the future debate over federal state financial relations, though the Property Council of Australia warns that a swap to land tax is unlikely to be the answer.

“By scrapping stamp duty and replacing it with efficient taxes we could boost Australia’s GDP by $3.3 billion and increase real consumption by $9.7 billion,” Property Council chief executive Ken Morrison says.

The Urban Task force agrees, with CEO Chris Johnson advocating for its replacement with a broad land tax.

““State governments have become comfortable with the large income they get from stamp duty on the purchase of homes but they must look at better, more efficient ways to raise funds,” he says.

“Sydney’s housing is among the most expensive in the world and this is partly driven by the various taxes and levies required by governments.

“A broad based land tax would spread the income base across all land owners rather than only focusing on the sale of homes.”

Morrison describes stamp duty as a tax that “costs jobs, hurts the economy, makes our cities less efficient and is an unpredictable tax base for state governments”.

“Deloitte Access Economics has calculated there’s a real benefit to households with replacing this inefficient tax with an efficient one,” Morrison says.

“The benefit equates to an extra $20 per week per household on average – which is more than half of what households spend on fuel and power.

“We all know that state government reliance on stamp duties increase with each year.

“A typical home in Sydney now incurs a $35,100 stamp duty. In Melbourne it’s $32,300, in Canberra it’s $20,200… and in Adelaide it’s $17,300.

“One of the consequences of stamp duty is that it makes moving costs inordinately high. Families and couples hold on to homes long after they’ve outgrown them, or long after the children have left.

“Scrapping stamp duty will result in an acceleration of housing turnover – with the current average of 13 years falling to eight years.”

Recent media discussion has advocated for the end of stamp duty, to be replaced with an ongoing annual land tax, a move that’s gained support from business groups, social service advocates and the development industry.

Many economists, including the Prime Minister and Ken Henry, author of the 2010 Henry Tax Review, have stated that a broad based land tax is the most equitable and fairest way to tax property owners and developers.

Unlike stamp duty, which imposes a huge up-front financial burden on home buyers, a broad-based land tax, paid annually and spread over a wider base of people, provides a steady income stream to government to fund infrastructure and shouldn’t hurt home buyers the way stamp duty does.

Broad based land taxes are simple to administer and encourage urban consolidation as the tax paid is based on the size of the land, according to Johnson.

“This tax encourages a more environmentally sustainable urban form,” he adds.

While the Property Council holds different views on the alternatives, its views on the need for change echo those of the Urban Task force.

“In putting the case for reform, we also have to look at what is politically feasible,” Morrison says.

“We appreciate the motivation of those who argue that the states should simply replace an inefficient stamp duty with a new land tax.

“The reality is that businesses already pay very high levels of land tax and there’s a political limit to what homeowners are likely to accept.

“Adding a new $16 billion annual land tax on the family home is not likely to pass the pub test.

“There are very strong reasons for abolishing stamp duty, but we have to be realists in this debate – replacing stamp duty with a new broad-based land tax on every family home is unlikely to be politically palatable.

“As well, the commercial sector already pays significant land taxes and we question if businesses across the economy can absorb a higher land tax. A shift to higher land taxes will simply increase this burden – and significantly reduce the economic benefits of moving away from stamp duty.

“Every economic analysis shows that Australia would be better off without stamp duty, but to achieve this we will need a more holistic reform effort.”