Stamp Duty Reform

by Hayden Groves

Newly minted Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that hideous, unfair tax that stifles economic growth and impacts affordability. Everyone from the Henry Tax Review through to the National Housing Finance and Investment Corporation (NHFIC) agree with what real estate agents have always 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 freeing up more suitable housing for more Australians that would improve economic efficiency.  

A buyer keen to relocate their family to places where there are better work opportunities are punished by stamp duty costs each time they move. A household that bought a median priced house four times over the past twenty years will have paid 10 times the amount of stamp duty compared to a household making only one purchase at the start of this period. As an example, Victorians nowadays pay $45,000 in stamp duty on a median house purchase compared to $12,000 in 2002. 

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. Stamp duty is often borrowed adding years and additional expense to home mortgages. 

A senior-citizen owner of a large family home on a low income is reticent to move home and down-size, largely because of the stamp duty cost payable on the transaction. 

NHFIC CEO, Nathan Dal Bon has advocated the benefits of a broad-based land tax as an alternate to stamp duty, stating that a typical household would be better off paying land tax on a median priced property than transfer duty. As an example, a household in NSW would have to pay a broad-based land tax for more than fourteen years to be worse off which is greater than the 12.4 year average holding period of a property. 

State governments are awash with stamp duty revenue, some $60b last year. This reliance on property transfer related revenue makes it difficult to reform as this tax base needs to come from somewhere. A broad-based land tax on all homes (including the family home) is a popular alternative but the roll out of this program in ACT has had disastrous consequences for the market there due to massive increases in land tax for investment properties leading to a savage shortage of rental stock with soaring rents as an immediate result. 

Certainly, a broad-based land tax would make state treasurers’ jobs easier. Estimating forward revenues based on property market predictions are difficult. No one would have predicted transactions in 2018 & 2019 in WA (and therefore stamp duty revenues) would be at thirty-year lows. 

Stamp duty revenues in WA are rising once again thanks to a resurgent property market but the tax remains a significant barrier to many buyers keen to enter the established market. The discriminatory stamp duty assessment of new versus established dwellings for first home buyers would be a good place to start reform.