The first year of a new four-year term is when a forward-thinking Premier should take on some big decisions. One of them should be Transfer Duty, or as many refer to it, Stamp Duty.
From a Treasurer’s view it’s not a good tax. Although collection is easy and cheap, it’s anything but predictable. In the recent extended price and activity boom, it’s been wonderful, making any Treasurer look like a genius. Money has poured in and then used to fund a good proportion of the many infrastructure projects currently in the pipeline.
The latest (and already, in hindsight, overly optimistic) four-year projection to 2022 estimates that Transfer Duty revenue (about 25% of State Taxes) will decline by more than $6 Billion. The largesse has been suddenly transformed into a trickle, down about 21% since 2017 and expected to decrease further as owners and buyers hold off and prices fall. This could be a two, or three-year, Duty drought, or even longer.
From an Economist’s perspective, it’s definitely not a good tax. It hits many First Home Buyers hard, even though there are exemptions for buyers of properties up to $800,000. More importantly, it discourages flexibility in dwelling choice. The high cost of buying and selling (of which Transfer Duty is usually more than half) means people stay in unsuitable accommodation instead of moving. Older people live in homes that are too big, have too many stairs or are too far from transport. People commute inordinate distances to their place of employment. It all harms the financial economy as well as societal well-being – pollution, traffic delays and accidents, time away from loved ones, loneliness and more.
Advocating a removal of a significant tax requires a plan to replace the revenue. The best candidate is Land Tax – a tax on all property at an amount that replaces the lost revenue. Clearly, there is an issue with equity. What happens to someone who has just bought a property and paid $30,000 to $200,000 in Transfer Duty? What about the pensioner or self-funded retiree living in their own home who can’t afford a new tax?
There is an existing model that most of us have not heard about. In 2012, the ACT Government brought in a program to phase out Transfer Duty (they call it Conveyance Duty) and replace it with a broad-based Land Tax over a 20-year period. The new tax is effectively just a gradual increase in their existing Property Rates.
The long phase-in time effectively solves the equity issue. What about a cost that some people can’t afford? That sounds a lot like getting a University education to me. That problem was addressed by HECS. A similar model would work well for residential real estate. The tax would eventually be collected on the sale or transfer of the property. Banks and super funds would finance the shortfall to the annual State revenue – a Triple AAA security that will play an important role as a good home for some of the billions in the Compulsory Superannuation pot.
There is an excellent explanation of the ACT’s model here: https://www.revenue.act.gov.au/tax-reform. It describes the benefits is delivers in terms of Stability, Efficiency, Equity and Simplicity and how it combats the inefficiency, inequity, unstableness and the barrier to entry for first home buyers in the previous system.