Stamp duty in New South Wales is disproportionately burdening First Home Buyers and should be abolished, according to a leading housing industry body.
First Home Buyers have been heavily subsidised by the Federal Government of late, and in Victoria stamp duty was heavily discounted at the lower end of the market to help remove a barrier to help people to get onto the property ladder.
Stamp duty disproportionately affects First Home Buyers, a key demographic cohort who are gradually leaving the market, with experts believing that reforms to the tax could help to bring them back in.
“The biggest barrier to home ownership is saving to get a deposit, it’s not repaying the mortgage,” said Tim Reardon, chief economist at the Housing Industry Association (HIA).
“The biggest barrier is getting access to finance in the first place and stamp duty creates an additional significant barrier that households repay over the next 25 years.”
“First Home Buyers are a group that are adversely affected by stamp duty. The economy-wide benefits of abolishing stamp duty should enable any group that are adversely affected to be compensated.”
“That’s a fundamental tax principle. The introduction of the GST is a great example of it: there are other industry sectors that were worse off after its introduction, but because it came with such a macro efficiency gain, transition measures could be put in place for those sectors.”
“The same could be said in terms of the transition away from stamp duty. If the alternative measures were economic losses for individual households, then the benefit to the economy as a whole and to government should be then directed to them to offset and compensate those that are adversely affected.”
“First Home Buyer activity is slowing, due to the impact of HomeBuilder in 2020 and early 2021, and they would definitely be a beneficiary of stamp duty reform.”
“But stamp duty also leads to an inefficient allocation of land, meaning that households move less frequently than they otherwise would.”
“People stay in homes longer than they should: for example, in the later stages of life, rather than moving closer to family or medical services, people remain in the family home because they don’t want to face that additional $20-$40,000 cost from transferring home ownership.”
“Likewise, rather than moving closer to work or moving to seek better employment, stamp duty constrains households from making efficient decisions.”
“In New South Wales and Victoria, stamp duty accounts for between 20% and 30% of all state revenues. To tax people out of housing, which is considered a necessity, is quite an inequitable tax.”
According to Reardon and the HIA, it isn’t just in New South Wales that stamp duty is causing these problems.
“All stamp duty is inefficient and inequitable,” he said. “It falls disproportionately on those that have to move homes to seek employment, education or health services.”
“It is also a punitive tax that punishes people that are seeking to find a home. There are far more efficient alternatives that raise revenue without the administrative costs associated with stamp duty.”
“Essentially all other revenue measures are more efficient than stamp duty. The Henry Tax Review found that the cost of stamp duty is around 75c to the dollar, making it a very inefficient tax.”
“That’s because it distorts behaviour and leads to inefficient use of land. The interesting case is in the ACT, where they are 8 years into a 20 year plan to abolish stamp duty, which they are replacing with a land tax. That’s one of the options that can be pursued.”
