Economists plead for abolition of stamp duty that unfairly punishes the young
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Victoria has one of the least efficient tax systems in the country and for far too long has relied on what economists warn are economically destructive taxes that must be radically overhauled in this month’s state budget.
In a submission to state parliament’s inquiry into land transfer duty fees, the Grattan Institute is among a dozen economists, as well as business and property groups, calling for Treasurer Tim Pallas to abolish stamp duty and replace it with a broad-based property tax.
Victorian Treasurer Tim Pallas is being urged to replace stamp duty with a broad-based property tax in this month’s state budget. Credit: Joe Armao
Brendan Coates, the economic policy program director at Grattan Institute, said Victoria’s heavy reliance on stamp duty was costing the economy up to $5 billion a year, and now was the right time to make the change to improve housing affordability and boost productivity.
“Stamp duty is a really unfair tax because it punishes those who are often younger and looking to buy their first home, and it stops people from moving to a better job,” Coates said.
“We can’t afford a situation where older Australians can opt out of the tax system for decades while they continue to draw on publicly funded services, which is what happens with stamp duty.”
The Grattan Institute’s submission to the parliamentary inquiry states Victoria has one of the least efficient tax systems, with each dollar of revenue raised costing the economy 30 cents.
The independent think-tank said stamp duty penalises younger people who tend to be more mobile, and described it as a defacto tax on divorce. Coates found stamp duty was a big reason why more than half of divorced women, who lose their home when the assets are split, do not buy again.
Victoria’s upper house in February voted to establish a wide-ranging inquiry into stamp duty and will investigate its impact on housing supply, labour mobility and the overall efficiency of the tax system.
In Victoria, stamp duty is determined by the sale price of a home or the property’s market value, whichever is greater. There are exemptions for first home buyers and people buying off the plan. A home with a dutiable value of $745,000 will incur about $40,000 in stamp duty.
Given the size of Victoria’s debt – tipped to reach $162 billion by 2025 – the Legislative Council’s economy and infrastructure committee will also examine any changes to revenue forecasting if stamp duty were to be ditched.
Governments have traditionally been reluctant to tinker with stamp duty because it rakes in huge revenue, as Pallas is preparing to hand down a “horror budget” to rein in the state’s ballooning debt and deal with a multibillion-dollar budget hit caused by rising interest rates.
For much of the past decade, stamp duty has made up more than half of the state’s tax revenue. But experts say it is volatile, with the Grattan Institute describing it as an “economically destructive tax” that Victoria has historically relied too heavily on.
Coates has advocated for Victoria to follow the ACT model and replace stamp duty with a progressive property levy calculated separately for each individual land plot. He said slowly transitioning to a broad-based property tax would provide a stable revenue stream for the state.
Infrastructure Victoria is among the chorus of experts wanting to abolish stamp duty, echoing the criticism that it is an inefficient tax revenue. The Victorian Chamber of Commerce and Industry noted 340,000 property transactions were foregone each year because of the burdensome levy.
Premier Daniel Andrews on Sunday declined to say whether the budget would include stamp duty reform, but acknowledged housing affordability was an issue that needed to be tackled nationally.
“It’s an ongoing process to try and make sure we provide the best environment, the most supportive environment for jobs and investment, but also for people to have the security of housing and to have that dream to start to build equity for them and their kids,” Andrews said.
Economy and infrastructure committee chair Georgie Purcell said it was important the inquiry examined the effectiveness of stamp duty, as well as exploring alternative options, in the midst of a housing and cost-of-living crisis.
“Something that seems abundantly clear in this early stage is that there aren’t many fans of [stamp duty], but the views on an alternative differ,” Purcell said. “It’s our job to explore those and recommend options in our final report.”
The state opposition was contacted for comment.
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