31 Aug Why stamp duty is a country killer!
In the current debate on tax reform we need to put stamp duty on the table. It’s commonly regarded as a draconian and inequitable tax. The Henry tax review said “Stamp duties are poor taxes. As a tax on transferring land, they discourage land from changing hands to its most valuable use. Stamp duties are also an inequitable way of taxing land and improvements, as the tax falls on those who need to move”. With about 4% of Victorian property selling each year, it’s just bizarre that it’s left to such a small number of people to fund the $4 billion of tax it generates. From last weekend’s sales, 960 people will pay $53 million in tax ($55,000 each). Now we know we need to pay tax somehow, but let’s look at the real impact of stamp duty.
The worlds working and living patterns are changing rapidly and Victoria and Australia needs to keep pace or preferably lead. Victoria is transforming from an industrial manufacturing state to a knowledge state. Many factories have closed down, sadly putting people out of work. Conversely many new smart business are opening up. The government makes the correct argument about focusing people in industries where we have a global competitive advantage, and re skilling those people put out of work. So there is a very real chance, a Ford factory worker will need to move his family from Geelong to a mining town, or where ever the work is. Apart from all the costs of moving and finding a new job, the government will charge that displaced worker $25,000 tax (assuming a $500,000 home) just to move homes. In many instances all the costs make it prohibitive to move, so that family literally can not afford to move. They become a drag on government welfare costs, and don’t add their skills to a competitive industry else where. We therefore have labour over supply / shortage in different pockets around the county. We have the skills, we just can not move people to where they are needed most. It’s a lose-lose-lose situation.
Why do you think it is hard for young people to buy a home? Sure the rising values are part of the equation but you can buy an apartment for $350,000 with debt service on par with rent. If you’re a young professional today, your life situation is going to change often over the next 10-15 years. You may need to move interstate or internationally to grow your career. And a one bedroom apartment is not going to meet your needs in coming years as you move in with a partner, marry, and have children. So there could be 3 or 4 different housing needs in the first 15 years of your working life. Ideally you could buy a small apartment and use the accumulated equity to progressively trade up, making owning your own home a reality. But the cost of each sell and buy move make that plan impossible. And what about older people living in those homes younger families want to buy. They can’t afford to down size because the costs which could include $60,000 in stamp duty, erode their asset base. This just keeps those home more tighly held, pushing prices up and retarding the natural transition of home ownership.
And think about this… If you buy a $800,000 home, and use 10% ($80,000) equity you still pay about $43,000 in tax. So that is 53% tax on the cash you contributed to your new home. It’s just wrong.
It’s a draconian tax that retards the countries global competitiveness and is a huge obstacle to people owning their own home.