Every Budget, ACT and Federal, journalists attend a lock-up in which they get the Budget papers several hours in advance. Half way through, the Treasurer gives a media conference.
For the past half dozen year, I have asked an almost ritual question: when is something going to be done about the outrageous stamp duty rates to take account of ever rising house prices?
Not this year. Something was done about them. They actually went up! And I don’t use exclamation marks lightly.
There was a minor change in 1987, but for more than 20 years stamp duty rates have not been changed to take account of rising house prices. It would be like applying the 1980 income tax rates to present income – top marginal rate of 66 per cent on incomes above $50,000.
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 a 13-fold increase. It is 2.74 per cent. So allowing for inflation, the stamp duty on the average house has more than doubled.
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 until the Budget attracted a marginal stamp duty of 4.5 per cent. This was increased to 5.5 per cent in the Budget.
The stamp duty on a $500,000 house increased in the Budget from $18,015 to $20,500. And duty on a $750,000 house goes from $29,265 to $34,875. The table tells the grim story.
Treasurer Ted Quinlan justifies the changes on two counts. First, they are comparable with NSW. But the new rates are only lower if the NSW house is heavily mortgaged and therefore attracts a hight mortgage stamp duty, Second, the new rates only start to bite at around $300,000 so middle-range buyers need not worry. Well, we need not worry now. But the 20-year history of stamp duty tells us that as property values rise, Governments do not adjust rates. It will not be long before the average home is $350,000 and a good many are at least $500,000 and ordinary people moving say from one suburb to another to be close to work or empty-nesters moving to a more appropriate will get pilloried with a $20,000 tax for doing so. It is a bit hit.
This is a politically cunning tax. It affects people on average once a decade. Only a few people at any one time are affected. Also, it is fairly well hidden. People buying property are already raising large loans and paying a range of other transaction costs – lawyers, moving costs and so on. The stamp duty gets hidden. Buyers rarely front the Revenue Office and pay it out of their own wallets. It is paid for silently via the slow drip of mortgage payments. In short, it does not translate into a big vote loser. It is bad policy and unjustified, nonetheless. Imagine if every monthly mortgage repayment were itemised — $950 for home-loan repayment and $50 for stamp-duty repayment. Maybe the banks should do that so home buyers would realise what a pernicious and unjustified tax this is.
Narrow taxes at high rates are economically inefficient. People change their ordinarily wise conduct to avoid the tax. People will be less likely to move when the change jobs or when children leave or the garden gets too much. As a result, society pays hidden costs in lost travel time and more petrol burned and in constructing new large dwellings because fewer existing ones come on to the market. Also, it is bizarre for Governments to work to make housing more affordable and to encourage investment and population growth and then put up a major impediment to those very things. It is an unfair tax because it hits hard people who happen to move house more often. Higher rates or across-the-board land taxes would be fairer and more efficient – but more politically dangerous.
It may be justifiable to tax investors (though why discourage investment). Indeed, in 1980 when these rates were struck, the duty at the higher end was mainly for commercial properties. No-one imagined at the time that the vast bulk of ordinary home-buyers would move from a reasonable hundred dollars or so stamp duty into the tens of thousands of dollars. You get nothing for this tax. It is not even an administration fee – the Land Titles Office charges a transaction fee of its own for that of a reasonable $150 or so.
The GST was supposed to eliminate all these state duties, but after the Democrats insisted on an exemption for fresh food, some were allowed to stay, including stamp duty.