PROPERTY

NSW and Victoria push to scrap stamp duty but will land tax save you money?

By

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.

stamp duty land tax

"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.

It found that for those who opted to pay land tax, the savings would ultimately be greater because people borrow to pay stamp duty and spend a lifetime paying it back.

"The modelling our team has done shows a median home owner would save $10,000 over their lifetime if they paid land tax instead of stamp duty," says PWC partner Paul Abbey.

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."

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Comments
Sazbo Karpo
May 20, 2020 6.01pm

key words! Phase out stamp duty over 20yrs whilst paying a phase in land tax so double whammy!

How Much land tax? This questions never answered!

Its been touted as $2400pa plus council rates plus body corporate! So your screwed anyway you see it!

Plandemic is bullshit excuse to raise new big taxes for ever!

Ray Prasad
May 21, 2020 4.38pm

Investment properties don't leave you much anyway, while you are owning them. It's only good as an equity for you to get into more & more debt as you go. If you do your sums properly, accounting for all the outgoings, one is not left with much, even if you are positively geared. Only smart people invest in silly things like in property, shares etc. Many oversmart people like politicians don't have any investment properties as they know they can live on their free Govt super perks or social security hand outs. We investors are idiots to work like a dog, pay the interest to the greedy banks, to provide housing to all the bludgers and feed the Govt with all the taxes attached investment properties. We are very deeply entangled in the economy & running the country without realising that three of four investment properties are not sufficient to fund our retirement. So why worry sacrificing so much in life & at the end of the day end up at the same level as a bludger.

Cheers.

Ray Prasad

usha bhagani
May 22, 2020 1.56pm

You are very right indirectly GOVERMENT is helping developer as people who will not do calculation will end up like better

In my opinion GOVERMENT is giving hard working people Nd all beggers are getting big pearls middle class is always disadvantage.people has given so much power to GOVERMENT that slowly and steadily world leaders uniting together forming syndicates and ruling over people's fear and peoole has no alternative except cry to their faith and work like dog to fill their stomach.

Eric Coyle
May 20, 2020 7.50pm

Remember folks this is governments looking at ways to increase revenue not save people money. So if we go land tax in the long run people will pay more as you do not increase revenue by giving tax reductions. I have no intention of ever selling my home so how will it ever save me anything,I paid stamp duty when I bought if they change I will now have to pay land tax also. Going by reading the newspapers land tax is rising very fast so what is to stop these increases.

doug fowler
May 20, 2020 9.44pm

whatever happened to stamp duty being removed as part of the promise of GST? are we still being had?

Ria Young
May 20, 2020 11.24pm

Hardly fair for current home owners that have already paid stamp duty on their property, and then to cop an annual land tax as well. Council rates are pretty high, so are water rates with the parks and gardens charges.

Joseph von Bornemann
May 21, 2020 9.35am

Generally People spend as much as they can afford buying a property. In a seller's market I am not so sure by abolishing land tax it will benefit the purchaser as their is a good chance the price of the house will just go up. The vender will get more money instead. The first home buyer will end up paying the same for the house but will have to pay an additional annual land tax.

LACHLAN VANDERKOOGH
June 1, 2020 12.10am

This is absolutely the case. Buyers will have more liquidity to leverage higher loans which in turn will raise property prices. It already costs around $5000 per year just to own your own home without mortgage repayments, putting another tax on top of that would see rent rises to compensate. A rise in GST is a far better option.

Seriously .
June 1, 2020 10.46am

GST which is also paid by renters? You think all Australians should pay higher taxes instead of taxing property owners?

harry fleming
May 21, 2020 10.03am

I believe the concept would only apply to homes bought after the policy change so that current hoe owners would be exempt. Nonetheless dont believe anything shane oliver says he only assumes but the tax is firm. If investors cant afford investing costs then they shouldn't invest !!! Investors don't deserve tax or costs break for their greedy gains... how ridiculous!!!

Rex Casper
August 8, 2020 2.58pm

No the proposal is to start taxing all properties.

So if you have already paid your house (and stamp duty) off or are paying it off (including stamp duty) you are one of the lucky ones who get to pay it twice. It's been heavily spruiked by the property council as more turnover of homes means more commission for their members.

Sheree Simon
August 9, 2020 8.27am

People who have already paid stamp duty would be grandfathered in, they would not be double taxed. Stop trying to scare people.

Stephan Wilson
May 21, 2020 12.27pm

Home owners are struggling to pay their mortgage, insurance, rates, bills etc now!

How are most of us suppose to afford $2000- $3000 extra annually? I've already paid my stamp duty so if they try to hit me with land tax, I'm raising hell and turning anarchist. Nothing like a pandemic, sorry I mean plandemic to make BiG changes.

Gavin Daroosta
May 21, 2020 1.04pm

From what I read, anybody who has already paid stamp duty will not pay land tax. Sounds fair to me.

only problem land tax like everything will increase each year and people buying houses from implementation off the new law will of coarse pay thousands more over a lifespan.

Paul Eardley
May 21, 2020 1.56pm

No mention of what the Land Tax % would be, and it would grow for sure. But then maybe some states will also hang onto stamp duty, as well as bring in land tax, as has happened when the GST was brought in. As it is i pay a higher fee for my rates and all of the other costs on my rates bill. Also i personally woud be paying more land tax depending on its value over what may be a lifetime , unless i choose to move or am forced into it. No insentive to get out there and have a go in this country anymore. Regards Paul Eardley.

Lorenzo Thomas
May 22, 2020 7.10am

This is a joke. Why remove a one off tax for a higher on-going tax? Might as well pay the stamp duty off over a period of time, spread it out. When its paid off, its paid off. Not on-going. The article states "...shows a median home owner would save $10,000 over their lifetime if they paid land tax instead of stamp duty," so why would the Government want to earn less, 10k? Doesn't make sense.

Peter Bradbury
May 22, 2020 1.22pm

The $10,000 saving for the household is interest saved by not having to borrow money to pay Stamp Duty. The government gets no less.

This type of reform should be about changing the mix of taxes that government uses to fund its activities without taking more in total. However, see the ACT experience where it is significantly shifting the tax burden from the rich to the poor, and tinkering with other tax settings that all (accidentally, we are led to believe) result in a greater total tax take. Only small concessions partly offset those gains, like the ones mentioned in the article first home buyers and early exemption for low value commercial transactions.

Peter Bradbury
May 22, 2020 11.46am

Another article which praises what is happening in the ACT without understanding the detail. The abolition of Stamp Duty is understandably supported by economists on the grounds of efficiency, and by many others on equity grounds (households that move less regularly than average contribute less than their fair share of total tax).

But, I have yet to find an economist (fully aware of the detail) that supports the replacement of the ACT's progressive Stamp Duty (2% - 6.75% of market value) by increasing tax rates in its existing regressive annual Residential Rates (a universal land tax 0.57% - 0.06% of market value in 2012) which is becoming more regressive (1.14% - 0.11% in 2020).

The ACT Government has also been caught out not being revenue neutral in this transition, both not lowering Stamp Duty by 1/20th each year and adjusting other taxes that result in greater total tax. Other jurisdictions going down this path should ensure much greater transparency from their governments, such as an annual independently audited revenue neutrality report.

Cee Mac
May 27, 2020 2.26pm

Thanks Peter for the insight from on the ground in ACT.

Can anyone link/URL me any articles on content for either NSW or VIC regarding the specifics of:

- What are the annual Land Tax % rates to be, once active?

- What will the land tax "land value threshold" (if any??) be, in either of these states? E.g. Will it reduce to $0 land value is exempt, or will it reduce from the (roughly - don't quote me) current ~$600K - ~$700K of unimproved land value to a modest (but significant for lower income/value property buyers...) land value of say $25K or $50K?

- Related to above question... Has either NSW/VIC state treasurers mentioned if it'll be a sliding scale? E.g.... "Land value $0 - $50,000 = land tax of 0.5% per year", then "Land value of $50,001 - $200,000 = land tax of 0.75% per year" and so on?

- For investors, will/is the recurring annual land tax payable in places such as ACT, already a federal income tax deductible running expense (such as Council Rates, Water, and Strata currently are)? If so, assuming this would apply for investors in NSW/VIC once the change-over to Land Tax commences?

- Have either NSW or VIC Treasurer's mentioned a solution for the 'double tax' problem of those who've already paid stamp duty being double taxed? Has a specific solution been announced for these folks? E.g. Be it a "No land tax payable ever" (seems unlikely). Or will this be a "People who paid SD 0-10 years ago get a sliding scale of exemption/reduction over the next 10 years" solution (more likely), or will it be a "Nope, you get slapped with Land Tax every year at full rate, no matter if you paid stamp duty on a property 0 yrs or 30 yrs ago!!" (double tax)

Anyone who has any quotes, articles, or even links to proposals by state govs etc.; please do share them

One can only make an informed upcoming purchase decision (be it for PPOR or Investment purpose) once armed with the facts of the full proposal

State Govs can do a great job but they can also be vague

Paul Lewlie
June 2, 2020 4.12am

Isn't the proposition of introduction of a new tax something that needs to be put to the electorate

louise brown
June 6, 2020 8.55am

Any idea when this would be implemented

Marie Tz
June 4, 2020 1.47pm

I agree with everyone's comments and concerns. High property taxes introduced in US, Europe etc. have put people off property ownership. I feel the same thing will happen here. What's the point of investing for retirement then. I can't help but wonder if a UBI is just around the corner, so why stress?

Andrew Glanville
June 17, 2020 5.39pm

Well ! ,I hope you are all sending emails to your local members disagreeing with this change as it is only a money grab by the government to put their hands in your pockets once again . Petrol levy , stamp duty ,gst ,income tax ,capital gains tax ,land tax , levies inbuilt into your car insurance and CTP ,medicare but wait for it, soon to be increases on your house insurance to cover bush fire victims who didn't bother to get insured.

Make sure all these things are fresh in your mind when it come to voting time. A short email every week to your local member state and federal will keep them informed as to how you feel because I think they have forgotten what they are suppose to be doing with the money that we are paying via these taxes, duties and levies. Everyone is feeling it at the moment and this sort of change should wait until the next election and be put on the ballot for the voters to decide not the politicians!

Van Van
July 6, 2020 2.13am

Please tell me how can a pensioner able to cough out 5000 dollars land tax bill per year? I might be better off renting.

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