THIS week we learnt that house prices in the ACT had shot up in the year to the end of March. The median house price in the ACT at the end of March was $195,000 – – an 11.4 per cent increase over the year.
The ACT government must be licking its lips in glee. This is because with every increase in property values it gets a large windfall in increased stamp duty. The growth of stamp duty on house transfers in the past 20 years has been insidious. Governments which put their hands on their hearts and say watch my lips – “no higher taxes” — ignore the way the stamp duty system works. Unlike rates and land tax, there has been no significant adjustment in the progressive scale of stamp duty for 20 years. Now stamp duty is a huge rip-off by government, and falls erratically on the population who happen at to buy and real-estate any given year. The rate of stamp duty is now so high it must be acting as a deterrent to people moving into more suitable accommodation.
With rates and land tax, on the other hand, when property values go up the government strikes a lower rate in the dollar to compensate for that, so that the overall tax take remains about the same. The reason governments do this is because the broad population pays rates every year and if they went up too steeply there would be a voter backlash. However, stamp duty affects only a few people in any given year and so is not as voter sensitive.
Some examples will illustrate how stamp duty has gone through the roof. At the beginning of the 1980s, the median house cost was around $30,000. The stamp duty on that transaction was around $415, or 1.39 per cent. But today the median house is $195,000 – – 6.5 times higher. However, the stamp duty payable on this transaction over median house is at $5,340, nearly 13 fold. It is 2.74 per cent. So allowing for inflation, the stamp duty on the average house has more than doubled. It has been a fairly steady increase. Governments have sat back and allowed the money to flow in, not adjusting the progressive rate. All they have done is added some scales for dwellings over $300,000 (at more vicious rates).
When you go above the median house price, the stamp duty rises rapidly. Twenty years ago, only top-end houses in Mugga Way would have cost $300,000 or more. Now such transactions are commonplace and attact a marginal stamp duty of 4.5 per cent. Governments have refused to do anything about this bracket creep. The picture is similar in other states and territories.
The most recent Bureau of Statistics figures show the ACT Government’s stamp duty grab (which includes some non-property stamp duties) has gone from $58 million in 1998-99 to $87 million following year – – a rise of exactly 50 per cent. And this from a government that says it has not increased taxes and charges.
Looking at stamp duty on dwellings on its own, in 1998-99 the government estimated in its budget that it would collect a mere $44.5 million in 2000-2001. It ended up collecting $65.2 million. It will not acknowledge the windfall it gets.
If the property market continues the way it always continues and if governments inevitably do nothing, people will be paying between 4 and 5 per cent stamp duty whenever they buy a dwelling. It is a classic tax that hits at the middle class. Moreover, it does so in such an erratic and infrequent way that no organised pressure is brought to bear on our MLAs.
Another fiendish tax is that on vehicle purchase. At least it is not on a progressive scale like stamp duty on property. However, at a three per cent, it is an unnecessary burden on people up-grading their cars to more environmentally friendly models. It is also an unfair burden on people moving between it states and territories who get hit with the tax when they change their registration. In fact, in those circumstances someone should challenge the tax on the ground that it is a breach of section 92 and Section 118 of the Constitution which provide for a free intercourse among the states and for them to give full faith a credit for each other’s laws (a long bow legally, but that would be the spirit of the Constitution).
It is a good time to mention these taxes because and next week the stamp duty on share transactions will be abolished. Even though we have a huge number of mums and dads shareholders, they do not trade very often so pay very little duty. The abolition of the stamp duty on shares will only be a boon to the very wealthy. Meanwhile, the middle-class tax-trawling grounds for governments – – houses and cars – – will remain subject to stamp duty.
And down at the lower end of the socio-economic scale, rent rebates, government housing and all the other accoutrements of the welfare state remain intact.
The car and property stamp duties would have been scrapped under the original GST deal, but the Democrats’ insistence on an exemption for food meant it was impossible — another tax transfer from the middle to the lower.
Coupled with the increasing PAYE tax grab illustrated on these pages three weeks ago, it is part of the general pattern of Governments squeezing the middle with ever more taxation.