In Dec 2009 Dr Ken Henry chaired a tax reform committee which included a scathing review of stamp duty as a “diabolical tax” saying it is draconian and obsolete and limits economic growth. Since that time a chorus of economists have demonished stamp duty agreeing it retards the efficient allocation of recourses. Or more simply, provides a financial disincentive for people to move for employment, life stages, education, up or down sizing, or just moving home for a change. There are too many “empty nesters” living in 4 bedroom family homes and too many young people struggling to get their foot in the market.
Eleven years later Victoria still has stamp duty, albeit relaxed to assist first home buyers and Canberra has implemented a 20 year program to abolish it.
On Tuesday this week, NSW Treasurer Mr Dominic Perrottet announced the potential scrapping of stamp duty (in NSW).
If it is so widely agreed that stamp duty is such a terrible tax, then why is it so hard to remove / replace it. Well in 2018-2019 stamp duty contributed about $7 billion in revenue to the Victoria Economy which was about 30% of its total tax revenue. (It is alarming how much tax comes from so few) If stamp duty is removed it needs to be replaced with something (most likely land tax) and it needs to be phased out so those who have just paid stamp duty don’t get taxed twice and how far back does the concessions go? Nevertheless it can be done, and with a state looking for ideas to boost the economy and a year that will see a significant decline in stamp duty revenue, maybe now is the time.
It will be interesting to see if Victoria follows the lead of NSW and while there are many issues to consider, the prize is surely worth the pain to transition to a more economically prosperous property tax.