Q+A: Is it time to get rid of stamp duty?
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What is the main topic discussed in this episode?
Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Is it time to get rid of stamp duty on property transactions? Many economists argue it's one of the most inefficient taxes we have. And for some Australians, particularly older homeowners looking to downsize, the stamp duty alone can be enough to make them stay put. And that isn't very good news for first-time buyers. So is it tax-making Australia's housing shortage worse? Nerida Cornisby is Chief Economist at Ray White. Nerida, welcome to Fear and Greed Q&A. Thanks for having me. Why do economists like yourself dislike stamp duty so much? And it's not only on housing, it's kind of on everything.
Why do economists call stamp duty an inefficient tax and how does it distort housing choices?
Yeah, so it is an inefficient tax. So the main issue is around the distortions it creates in the property market. So it does discourage mobility. It discourages downsizing. It increases the costs of transactions. It adds an extra friction to transactions. And all of those things make it quite problematic when it comes to housing markets.
So it's an inefficient tax. How is it levied? Is it levied similarly across the country? Is it a state-by-state basis? How does it work?
It is state by state. Canberra, well, Canberra as a territory doesn't actually have stamp duty. They've made a shift across to land tax. But elsewhere, it is state by state. So every state has a different rate of stamp duty. Every state has different cutoff points as to how much is applied at each cutoff point. And as a result, it is, you know, and it does change over time. So I guess that's the third component of it.
Okay. So there's been talk, I certainly know in New South Wales, there's been talk about shifting from stamp duty to land tax. You mentioned that's what's happening in the ACT. In a sense, is one better than the other? That's the first question. But I suppose the flip side to this whole argument is that governments need to raise revenue to build hospitals and schools and roads and stuff like that. So I'm trying to balance all that out. Would you prefer a land tax to stamp duty is the first part of the question?
Yeah, look, overall, it would be better to shift to a land tax situation. I guess the issue, as you said, is around state government revenue and state governments rely very, very heavily on stamp duty. So they have done very well over recent years from stamp duty. Stamp duty revenue increases when house prices increase. It increases when the number of transactions increase. And as a result, it is very hard for them to give up I guess on the flip side, though, it does lead to state government revenue being highly variable as well. And so what we do see is in times of housing booms, the state governments do very well. When things start to pull back like they are at the moment, it does lead to a reduction.
So from that perspective, moving to land tax would make a better situation because it would start to flatten out the level of revenue that's coming through. So I guess from that perspective, it would be a positive for state governments.
So on the ground, what's it mean? Does it mean that older people aren't downsizing because they just can't afford to downsize? Are there other demographics that are being hit harder? I'd imagine first-time buyers don't like paying stamp duty too much.
Yeah, I mean the downsizer one is probably the biggest one because at the moment owning your own home is a tax-free asset and so there is very little incentive to downsize. Moving to stamp duty to land tax would create a bit more friction for downsizers so it would create a situation where it is quite expensive potentially to hold a big expensive family home and and make it more cost-effective to downsize. So from that perspective, it makes sense. For first-home buyers, stamp duty is often used as a lever by state government. So they'll try to get more first-home buyers into the market by... giving stamp duty exemptions. So, you know, we do know when they're given that we do see high levels of first home ownership.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:06–0:49
2
Why do economists call stamp duty an inefficient tax and how does it distort housing choices?
0:49–5:08
3
How is stamp duty applied differently across Australian states and territories?
5:08–7:56
4
Would replacing stamp duty with a broad-based land tax produce fairer and steadier state revenue?
7:56–10:05
Speakers
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