The Housing Industry Association (HIA) has thrown its weight behind calls to end “inequitable” and “inefficient” stamp duty.
The HIA submitted a report to the Buying in NSW, Building a Future consultation paper late last week as the New South Wales state government mulls over replacing stamp duty with a land tax.
Speaking to Australian Broker, the HIA’s Chief Economist, Tim Reardon, said that stamp duty was inefficient, inequitable and incapable of providing state governments with a reliable income stream.
“In the Henry Tax Review, they identified it as the most inefficient tax we have in our system, where 70% of the revenue raised was lost in terms of economy-wide efficiencies,” he said. “So it's an extremely inefficient tax.”
“It's also quite inequitable. We saw that particularly last year where households were required to move to pursue employment and educational opportunities, but if they bought a house in the process, they would be penalised by the punitive rate of stamp duty on their home purchases.”
“We also saw last year that the sudden change in homes transacting saw a significant reduction in revenue raised by state governments. In New South Wales, they lost about $500m. At a time when they should be looking at increasing expenditure, they had the rug pulled out from underneath them due to a falling away in stamp duty revenue.”
“State governments have also become very reliant on stamp duty: round about a third to a half of state government revenue comes from it, and they need to look at alternative ways of raising revenue rather than simply taxing homes.”
The HIA spokesman said that it was not as important which type of property tax the NSW state government chose to replace stamp duty, but more that they replaced it outright.
“Essentially, every other tax regime that is available would lead to a more efficient outcome than stamp duty,” said Reardon. “Whichever mechanism they choose will lead to an efficiency improvement.”
“You penalise people who need to change homes for health reasons, as in to move closer to a health facility, or for educational reasons, to move closer to study, or for an employment purpose you get penalised for the transfer of a home.”
It wasn’t just that it overly penalised people for selling up, but it also discouraged people from moving when it might be in their interests otherwise to do so.
“The other way that it plays out is that you end up with situations where people don't live in a home that is appropriate for their needs,” said Reardon. “You see situations where empty nesters remain in large family-sized homes on family blocks and don't want to relocate closer to family or to healthcare services because they don't want to incur that punitive tax.”
“You can, by abolishing stamp duty, lead to a more efficient allocation of school resources and public health resources and therefore get a more efficient allocation of investment in transport infrastructure. All those inefficiencies are caused by forcing people to live in places that aren't appropriate for their needs, and could be improved if stamp duty is abolished.”
