When it comes to Australian taxes, you’d be hard pressed to find a less popular contender than the superfluous stamp duty. We were actually supposed to be rid of it back in 2000 when the GST was introduced, but somehow it’s managed to stick around for another twenty years past its use by.
Every couple of years, the move to abolish the revenue raiser regains momentum before being knocked from its priority podium by another public issue. But now, as the property market begins to take shape after two months of coronavirus restrictions and we begin to rebuild our economy, the call for stamp duty reform is louder than ever.
NSW and Victoria governments are leading the charge to scrap the outdated and ineffective tax that owners must pay upon purchasing a new home or property. One of the reasons it is so disliked is despite a sizable increase in market prices since its inception, stamp duty continues to be calculated based on purchase price. For comparison, thirty years ago, the median house price in Sydney was less than $200,000, leaving you with roughly $5,500 to pay in stamp duty. The median house price in Sydney today is upwards of $1 million—five times higher than it was in 1990—meaning the average duty is over $40,000. The tax is one of the state’s biggest revenue raisers, reportedly raising about $21 billion in 2017/18.
In its place, state ministers suggest imposing an annual land tax on owners as part of a broader bipartisan Covid-19 recovery plan to help fund the economic fallout from the pandemic. NSW Treasurer Dominic Perrottet announced that “There is no better time to rid the states of inefficient taxes that hold back economic growth” before singling out stamp duty and payroll taxes.
While no date has been set for when the reform will come into effect, PM Scott Morrison has stressed that in order to ensure job and income growth, extensive changes will need to be made. Considering he recently dubbed stamp duty ‘a terrible tax’ where ‘for every $1 raised it does about 80¢ of harm’, it’ll likely place high on the overhaul list. “The question is what replaces it because the states can’t go cold turkey. We need to make sure the states don’t increase taxes masquerading as tax reform”, Mr Morrison said.
The Reserve Bank Governor Philip Lowe recently weighed in on the issue, stating that “the way we tax income generation, consumption and land” should be at the forefront of Australia’s reform agenda. By removing stamp duty, families would be given the opportunity to move closer to their workplaces and desired school districts, whilst more family homes would enter the market as downsizers would no longer worry about their retirement funds taking an unnecessary hit by relocating. Additionally, its eradication would alleviate the financial burden that comes with repaying high interest loans many buyers (particularly first home buyers) take out to cover stamp duty in the first place.
Of course, this isn’t the first time that we’ve heard all of this, so don’t hold your breath. But if the government does decide to scrap the tax (as it should!), you’ll be saving up to 4% on the property costs when buying a home. Good riddance!