The money has to come from somewhere — to fund health, education, police and roads.
This was Chief Minister Jon’s Stanhope’s riposte to Opposition Leader Brendan Smyth’s tirade about stamp duty going up by 67 per cent under the Stanhope Government.
Stanhope is right about the need to tax, but when he said the ACT had a narrow tax base hence the high stamp duty rates, he was slightly off the mark. True, the ACT has a narrower base than other states and territories because there is less industry here and one of our main industries – federal administration – enjoys an almost tax-free status. But the states and territories no longer can whinge that they have a narrow tax base now that the GST is in force. The $35 billion GST revenues go entirely to the states, under GST law. It is a very broad-based tax. It is imposed at 10 per cent on roughly half of Australia’s wealth generation. (It raises $35 billion which is 10 per cent of half of Australia’s total $700 billion GDP.)
The original GST plan was for greater income tax cuts and the abolition of various state duties, including stamp duty. But the Democrats watered it down. Once food was exempt, the income tax cuts were diluted and the states and territories kept many of their duties.
Over time, governments have won. Since the GST all of the income tax cuts given then have been eaten by inflation. At GST time the top marginal rate came in at $60,000 and Treasurer Peter Costello has generously agreed to increase it to $62,500. If he had indexed it according to average weekly earnings the top marginal rate would apply at $71,400. He has increased taxes by about 9 per cent, not cut them.
The GST is mopping up the black economy and with extra enforcement has increased at an average of 9 per cent a year against general economic growth of 3 to 4 per cent.
So let’s not talk of narrow tax bases and the struggle for governments to fund things. Governments are raking it in, especially with unindexed taxes like stamp duty, and motor vehicle taxes.
Increases in property prices have meant stamp duty on the median house price has gone from $5865 in December 2001 to $9775 now a rise of 67 per cent, as Smyth pointed out. He also pointed out that when a house goes from land developer to builder to consumer there are several impositions of stamp duty.
Both Liberal and Labor Governments have refused to index the property values at which the various progressive rates applied. Labor actually increased the stamp duty rates at June 2002. At the time Treasurer Ted Quinlan argued that the increases only applied to the top end of town buying high-priced houses. He added about $500 to the duty on a house valued at $300,000 and added 1 percentage point of duty on the value above that, and even higher rate on the value above $500,000 and an even higher rate on houses above $1 million. Well, a $300,000 is no longer the big end of town (even if it was in 2002), it is average. Labor has imposed extra stamp duty on the average house.
The 3 per cent stamp duty on cars is worse because – like the insurance levies — it applies on top of the GST. Again there is no indexation. The higher rate of 5 per cent cuts in at $45,000.
The BAD tax – which taxes bank withdrawals – hits the average wage earner with about $150 a year for the privilege of withdrawing his or her salary which the employer insists on delivering into a bank account. This, too, was supposed to go with the GST and indeed will do so, several years after the event. The tax applies to all transactions on any accounts with a cheque book attached (not just on amounts paid by cheque). It can be avoided by simply cancelling all cheque facilities on all accounts. You just pay bills by credit card or internet transfer. The BAD tax is a shocker for taxing small transactions and those who do not have credit cards or internet banking.
The GST should replace these taxes, not be imposed in addition to them. Stanhope’s argument about the narrow tax base no longer washes. The GST has already been paid on all new construction and all renovations since the GST began. To impose stamp duty as well is double dipping. Stamp duty should be wound back as the states and territories get the GST on construction costs.
Stamp duty is an inefficient tax because it acts as an impediment to transactions in dwellings. People extend rather than move or stay in a house too big for present needs. If you make moving easier, the housing stock is used more efficiently.
You would not impose a GST on the resale of an existing dwelling for the same reason you do not impose GST on transactions of second-hand goods. The GST is imposed upon added value. There is no added value to existing dwellings (or if there is through extension and renovation, the GST has been paid on the goods and labour). True, the total value of a property might have gone up, but that is due to the land value, not the house value (which has usually depreciated).
The states and territories have been whingeing about narrow tax bases since they foolishly followed Joh Bjelke-Petersen’s Queensland in abolishing death duties. In a roundabout way they have been reimposed through capital gain tax. But the real anomaly has been to exclude the principal residence from capital gains tax. There may be a case to exempt it from capital gains tax when selling and then buying elsewhere – in the same way that transfer of business is exempt. But capital gains tax should be imposed on the principal residence at the time of death of the surviving spouse.
But if governments are struggling in these boom times of increasing property prices and increased GST revenues, they had better either cut their vote-buying programs or reduce voter expectations before the inevitable property slump.