There have been suggestions of late that the state governments should consider reducing or even abolish stamp duty on the purchase of properties. To replace the lost income, they would increase land tax and even charge land tax on principal places of residence.
First off, stamp duty is a tax levied on the purchase of property. This can limit people’s ability to move locations, which can hinder the economy. Someone may have a job opportunity far away from where they currently live, however they may turn down the job as they do not wish to either rent or incur stamp duty. Older generations who have larger houses and kids who have moved out, maybe less inclined to downsize their house to avoid incurring stamp duty. This means less supply of larger housing for new families to move into.
While the removal of stamp duty would be great for people looking to move or downsize. It would, however, leave a big hole in the budgets of state governments that would need to be replaced. The most common suggestion is to replace this lost revenue through increase land tax. Potentially this could take the form of both an increase in the land tax rate and also a broadening of the scope to encompass all types of properties. In particular this would include principal places of residence and commercial properties.
The switch from stamp duty to land tax would not need to be all at once, but to avoid any shocks to the economy would be need to be done gradually. In fact, the ACT is currently in this process of reducing and removing stamp duty while increasing land tax to offset the loss of revenue.
The more unaffordable housing becomes, the more of a burden stamp duty becomes. Currently stamp duty for a principal place of residence for the median Melbourne price of $880,902 (per Domain) is $47,924 (per sro.vic.gov.au). Average full time Australian income is around $83,600 (ABS), which means land tax equates to 57% of gross average full time income. Meanwhile if we look at stamp duty and income from 15 years ago. Median Melbourne house price was $327,500 (Theage), stamp duty on it was $15,(sro.vic.gov.au). Average full time Melbourne income was at $46,500(abs). Therefore, on average, in 2002 stamp duty amounted to 33% of annual full time income, vs 57% now.
Summary of pros and cons:
|Removal of hindrance to those wanting to upgrade/downsize/re-locate||Increase in tax burden on property owners|
|Smoother more reliable income source for the government||Potential deterrence from property ownership|
|Removal of hindrance to first time buyers (although Government first home buyer incentives help to offset this)|
Finally there is also an ethical argument to made for the imposition of a land tax on all land ownership. Essentially this is an argument about whether or not all the land of Australia should be for the benefit of all Australian’s. Is land a valuable commodity such as iron ore and coal etc.? If so, should those who benefit pay a royalty or tax to the government for it? I believe property ownership is a core part of a stable and prosperous democracy, there is no question that the right to own property should be protected. However as we head towards a future where fewer and fewer of future generations will be able to afford their own home, should a broader all encompassing land tax be introduced to help keep Australia from becoming too unequal?