Stamp Duty - and Land Tax !

A KPMG study has suggested that replacing stamp duty with a universal land tax would inject five billion dollars into the New South Wales economy - and create ten thousand new jobs.  There is no doubt that stamp duty is a huge hurdle to first home buyers.  Now that the median Sydney home price is reaching a million dollars the stamp duty payable is a staggering forty-one thousand dollars, requiring years of extra savings to get into the market.

Land tax already applies to all property valued at more than $ 482,000, but both farmers and owner/occupiers of homes are exempt.  This proposal removes what is really a " purchase tax " whenever a property changes hands and replaces it with an annual small tax that applies to every existing home in this state.

Obviously, it would be welcomed by first home buyers, but the people who have paid stamp duty on the home they now live in may not be so enthusiastic.  Stamp duty is a one off tax and existing home owners would see no benefit from it's abolition.  Replacing it with an annual land tax would be to them a new imposition, similar to the annual rates imposed by their local council.  Many people would accuse the state government of " double dipping ",  having charged stamp duty on the home they now own and changed the rules mid play to extract a new annual fee.

There is also the danger that such a change may bring a reduction in home values.  Often the mortgage loan is padded to fund stamp duty, hence the asking price may decrease - to the detriment of what the seller may expect to receive.   It may also create a price disparity between old homes and new constructions.  The scarcity and value of land for new buildings will not decrease and without the imposition of stamp duty the gap between old and new may widen.  It will be impossible to predict what outcome will emerge in advance of such a change.

Stamp duty is indeed a hoary old chestnut.  Probably a reversal to impose it on the seller rather than the buyer might have been an earlier option because it would cause less financial distress by those receiving the value of the property sold than the buyer struggling to put together the deposit needed for purchase.   That suggestion failed because of the imbalance implementing it would cause between buyer and seller - at the time of bringing it into use.

Stamp duty - as the name implies - was a clever little tax measure enacted  centuries ago in merry olde England - which came to Australia with the first fleet.  Like postage, the Crown required the buying of a stamp and having this affixed to official documents of monetary exchange as a form of validation.  The rate was quite low but it ensured a steady trickle of funding because of the widespread net it cast.

Today, it exists in a variety of new names.  Whenever we buy a new car a tax applies when the vehicle is registered in our name and this is really stamp duty in a different guise.   This KPMG study only applies to stamp duty on real estate and there is no plan to abandon its use in the wider economy.

It is also unlikely that this suggestion will proceed to implementation.  Making land tax universally payable on all homes would be seen as a new tax and be fiercely resisted.  There is also the problem that stamp duty delivers twenty percent of New South Wales tax revenue - and that is $ 8.7 billion.
The Treasurer would think twice before signing away that sort of money.