Calls for scrapping stamp duty are gaining traction in the midst of the COVID-19 pandemic, as the states look for ways to stimulate their battered economies.
Critics of stamp duty point to its transactional, front-end nature, and the burden that creates for first-home buyers and those looking to invest, upsize, downsize, or relocate.
“Stamp duty is a horrible tax because it adds a huge impost to the purchase of a property, adds to poor housing affordability and distorts decisions as to where to spend or invest,” AMP chief economist Shane Oliver tells Money.
“And it leaves states overly dependent on property booms for revenue which then is highly cyclical.”
Against the backdrop of heightened job insecurity and slow income growth due to COVID-19, there is a bipartisan push by state ministers in both New South Wales (NSW) and Victoria for the abolishment of stamp duty.
“Stamp duty on residential properties are particularly costly as they add to the cost of buying a house and therefore discourage people from downsizing, or moving closer to preferred jobs, schools and family,” notes a NSW Treasury discussion paper.
The commonly raised alternative is to replace stamp duty with increased land tax, thereby removing the up-front transactional barrier that contributes to the above problems.
“Stamp duty is a major source of revenue for state governments, but land tax and GST reform are the obvious mechanisms to maintain this revenue,” says Peter Bembrick from HLB Mann Judd.
“A logical alternative to stamp duty would be a land tax which would apply to all property owners rather than narrower base of the 4-6% of properties that transact each year,” notes Corelogic.
The ACT has led the way here, committing in 2012 to a 20-year plan to phase out stamp duty and replace it with a broader land tax and higher rates. In 2019, it was abolished for first home buyers and on commercial properties worth $1.5 million or less.
This kind of state revenue redistribution is supported by economists.
“I would like to see a land tax levied at a very low percentage rate, to ultimately raise the same revenue as stamp duty,” Oliver says.
PwC has modelled the impact of letting people choose between stamp duty upfront, which is roughly $50,000 for a median-priced house in Sydney, or land tax over time in smaller instalments.
Once the house was bought with land tax, it would stay that way until all property was under that system.
Additional benefits include changing the supply response.
“No stamp duty may attract more people to turn over property leading to greater economic benefits.”