Imagine for a moment losing or having your home seriously damaged by the floods that ravaged parts of Queensland and NSW. Apart from the obvious stresses of losing your possessions and having to live elsewhere for long periods, the financial burdens would loom large.
Insurance costs in these disaster-prone areas have, in some cases, risen by 75 percent. A friend of mine recently told me it costs him $14,000 a year to insure his investment property – with a $500,000 replacement value - in Port Hedland, another region prone to natural disaster. These costs are naturally passed on to tenants negatively impacting rental affordability in these regions.
The federal government recently passed legislation in the lower house that enables a $10B reinsurance pool, effectively underwriting insurers’ insurance risks which, in turn, should lower premiums for property located above the 26th parallel. Let’s hope this makes a difference.
It also occurred to me that many victims of the recent floods have probably endured such upheavals on many occasions and there must come a time when the idea of having to re-build their homes and lives is simply too much. It would not surprise to find many families will move from disaster-prone areas and when they do, they’ll pay stamp duty on their home purchases.
It is widely known that stamp duty is a significant barrier to property ownership and is an insidious, transaction-killing tax that should be reformed.
Stamp duty significantly reduces household mobility with its removal would free up more suitable housing for more Australians and would improve economic efficiency.
Buyers keen to relocate their family away from natural disaster zones or where there are better work opportunities are punished by stamp duty costs each time they move.
Thanks to bracket creep, all households across Australia are paying substantially more stamp duty now compared to twenty years ago which is hindering the efficient use of and suitability of housing across the nation. Also, stamp duty is often borrowed adding years and additional expense to home mortgages.
State governments are awash with stamp duty revenue, some $60b earned last year. This reliance on property transfer related revenue makes it difficult to reform as this tax base needs to come from somewhere. Alternatively, albeit politically poisonous, a 2 percent increase in GST that gets distributed to the states could offer an immediate fix.
Meanwhile, those fleeing disaster-prone areas and buying elsewhere ought to be spared the cost of stamp duty; they have, after all, ensured enough.
