A call to abolish stamp duty taxes on property purchases has been made by many people in the real estate and mortgage finance industries for many years, in fact they were supposed to be abolished by the states with the introduction of GST on the 1st of July 2000, the states still got their GST but never abolished duties on property transactions.
Concessions on duty and first home buyer grants do little to help, according to many industry spokespeople.
Many claim state governments enjoy real estate booms because rising prices and turnover combine to send stamp duty revenue flooding into state government coffers.
Reliance on Stamp Duty
The states are heavily reliant on duties for their funding, some say too heavily, which is unhealthy and illustrates why a rethink of how the states are funded is necessary.
The 2010 Henry Tax Review labelled stamp duty “volatile and highly inefficient,” discouraging property transactions and being unfair, “as people who need to move more frequently bear more tax, irrespective of income or wealth.”
The 2008 NSW IPART state taxation review ranked stamp duty among the least efficient taxes, because it “adds to the cost of real estate transactions and so can distort investment decisions; and because it applies to a narrow base (properties sold during the tax year) … the revenue it generates can change dramatically from year to year, depending on the property cycle.”
The Tasmanian government has recently increased its first home builder (FHB) grant to $30,000, this may allow more first home buyers to enter the property market now as the grant will in many cases cover the stamp duty and the LMI.
This in itself can only be good for the state as it will generate activity in the building sector as the grant is only for purchases of newly constructed properties, or for buyers that are planning to construct.
On the down side is the possibility that this could drive prices higher and properties at the lower end of the market may prove undesirable, creating a two tiered market.
Before abolishing stamp duty entirely state governments will need to find a way of replacing this lost revenue, though the upside of a more active property market and the stimulus this brings to the whole economy can’t be ignored.
The negative effects that duties have on first home buyer figures in particular varies from state to state, perhaps the Queensland model of exempting first home buyers from paying any state duties up to a purchase price of $500,000 is a more appropriate measure.
Whatever does happen in the future, continuing to use stamp duty as a tool to either stimulate or lessen activity in the property market should not be the reason for it’s existence, taxes should be for the raising of revenue to bring in essential services not macro economic policy.