Stamp duty arguably does have both pros and cons and whilst the negative gearing can provide our economy with the financial stimulant it needs, many industry leaders are discussing whether it’s seen better days. One industry leader, Cameron Kusher from the property analyst data company CoreLogic stated that he believes it should be scrapped in favour of a universal land tax.
In the financial year of 2014 – 2015 the total state and local governments taxation revenue was $89.278 billion with half of that amount being made up from property taxes. The Australian Bureau of Statistics (ABS) supports this data by agreeing that $45.203 billion or 50.6% came from property taxes. This figure is also rising too because taxes from other means only rose by 7% during this financial year, whereas property taxes rose by 10.5%. A standardised universal land tax could be more cost effective for home owners.
In light of this information it’s safe to say that the largest form of governmental taxes come from property and by the looks of the ABS statistics, that figure is rising. This may not mean much but to put things into perspective, since the financial year of 1999 – 2000 the state and local government taxation revenue has increased by 103%. Over the same time period property taxation has increased by 150%, meaning it’s the number one revenue provider for the government.
The dependence on volatile stamp duty, however, provides its own set of challenges for the government, which is one of the reasons industry leaders believe stamp duty should be axed. "Universal land tax" is the current term that is being coined by leaders and although tax payers won't like the sound of a new tax being introduced to the system, it will at least provide more revenue certainty for our government.
Why should we want to replace stamp duty that we have all become accustomed to? Well, replacing it with the universal land tax doesn’t deter the buying and selling of properties because it will be a fixed tax that applies to all properties and does not fluctuate with the value of the house for example. This in itself could offer the potential to save more money or avoid certain costs during the process.
There are two broad categories of property taxes applicable to ‘immovable properties’ and these can be broken down quite simply. Firstly, you have land tax, council rates and taxes which are all one side of the coin. On the other side you have financial and capital transactions e.g. government borrowing guarantee levies, conveyance stamp duty and other related stamp duties.
If you break down the tax revenue for the government, they receive 40.8% from stamp duties on conveyances and council tax. The only other significant revenue generated for the government is from land tax, which is 14.8%. If you are asking yourself what the issue is, then think of it this way, industry leaders aver very concerned that such a large proportion of the government’s revenue is generated by a single tax: stamp duty. Taxes on a volatile platform like the housing market pose risks if we experience another sub-prime type property crash.
Inequality and Volatility
Stamp duty is dependent on market strength, driven by the rate at which people buy and sell their homes. This has taken a dip in the past 8 years whilst the world has been recovering from recession. The surge of money in the property market over the past 2 years has meant that taxes on real estate value and transaction amounts have been rising, but when one or both of these begin to slow or fall, a significant drop in government revenue occurs.
As a result, numerous countries around the world have had to reduce their government spending drastically in order to accommodate for the huge losses brought about by reduced stamp duty income. The end result means that huge sections of the public sector can be axed taking thousands of jobs with it. If the change goes ahead then it could also save homeowners money because the land tax would be more closely associated with council taxes that are static costs compared to transaction and value stamp duties.