In the race to reach the post-COVID-19 recovery stage as quickly as possible, the necessity is to bring confidence back.
However, at a time when everyone is hanging on announcements, commitments and timelines from politicians and regulatory officials, it’s important that the communication is clear, transparent and detailed in order to boost confidence. Recent discussions surrounding changes to stamp duty have not been one such communication.
Over recent weeks, the federal Treasurer, RBA governor and NSW Treasurer have all discussed the need to overhaul the tax system and singled out stamp duty as the tax most in their sight. As evident by the course of supportive voices, for more than a decade, everyone agrees that stamp duty is a highly inefficient tax which needs abolishing. However, while the sentiment in the most recent discussions is positive, the lack of detail has had the opposite effect and led to a decline in buyer confidence.
Real estate agents have now reported increasing and disruptive frustration in buyer activity tied directly to potential changes to stamp duty. The main concern being that if a buyer purchases a home now, they will lose out on any savings from potential stamp duty changes, so they’re hesitant to decide to buy now or later, whenever that may be.
Therefore, it’s important that the government quickly, and in a detailed manner, release their proposal to wind back or repeal stamp duty, to ensure buyers that are looking to get into the market now can proceed with certainty and with a clear understanding about how tax changes will affect their purchase.
Stamp duty around the country on a $900,000 home:
Why is stamp duty a dampener for real estate markets and the economy?
Put simply, stamp duty adds additional and unnecessary cost to property transactions. At a time when affordability has become a big societal issue, governments need to be looking at solutions to make buying a home more affordable.
COVID-19 has seen an increase in people working from home, so more may now take look more closely at where they want to live and work from. This means there could be greater migration to more affordable regional centres. However, the transactional costs of buying a new house may prove to be a barrier to doing this. Stamp duty increases the transactional costs and therefore limits the mobility of workers; that is, it stops people from moving elsewhere because the cost of buying a new house outweighs the benefit of the move.
In addition to moving for work, it also stops households from selling and buying a home to suit their changing circumstances. This means that a growing family may decide to stay in an apartment that doesn’t suit their changing needs or it may see a retiree remain in a large house as opposed to downsizing to a more suitable townhouse or apartment.
Why is stamp duty important for governments?
Governments have been reluctant to change or reduce stamp duty to the large proportion of revenue it generates, accounting for almost 25 per cent of revenue in some states. However, while governments like the largeness of stamp duty revenue, the level of revenue can fluctuate a lot from year to year, depending on the strength of the housing market, and this makes it hard for them to budget, plan and forecast.
What are the options for reducing, or even replacing, stamp duty?
There are two major solutions put forward by economists to replace stamp duty. The first is a broader-based land tax, which would mean that all land (property) owners would share the tax burden by paying a set amount of tax based on the value of their land each year. This would ensure that a government would receive a steady, reliable and consistent level of revenue each year.
The second solution put forward by economists is increasing the rate of the GST and/or broadening the basket of goods which the GST covers. This increase in GST revenue can then be shared out to the states for reducing, or even deleting, stamp duty.
Stamp duty is an issue that has been recognised, discussed and debated for decades. It’s time to stop kicking the can down the road. Thought bubbles, talking about reform, announcing that you would like to scrap stamp duty is all good and well, but without detailed plans and timelines, it only causes confusion, reducing confidence in Australia’s property markets.