The No.1 tax economists hate? Victoria is keeping it

Victorian homebuyers will still pay stamp duty after a parliamentary inquiry stopped short of calling for the contentious tax to be abolished, despite the high cost of housing and against the advice of economists.

A cross-party committee has instead recommended that Treasury investigate how the state could replace upfront stamp duty with a broad-based land tax for residential properties, and for that modelling to be made public, in what economists and some MPs are labelling a missed opportunity.

Treasurer Tim Pallas says the state government is constantly reviewing the tax system.Credit: Chris Hopkins

The upper house’s economy and infrastructure committee has also urged the Andrews government to regularly review stamp duty rates to tackle bracket creep, as well as advocate for a national approach to stamp duty reform.

Chief economist at AMP Capital Shane Oliver said Tuesday’s recommendations were disappointing given stamp duty was a “massive upfront cost” for young people and a disincentive for empty nesters looking to downsize.

“It is the No.1 tax most economists would want to get rid of,” he said. “It distorts people’s decisions to buy and sell, whereas a land tax is just an ongoing, relatively modest tax.”

Stamp duty is determined by the sale price of a home or the property’s market value, whichever is greater. A home with a dutiable value of $745,000 will incur about $40,000 in stamp duty.

Animal Justice Party MP Georgie Purcell, who chaired the Legislative Council inquiry, said the final report stopped short of calling for stamp duty to be abolished because a viable alternative was not yet clear.

“While people don’t like stamp duty – it’s a highly contentious tax – it’s not as simple as just abolishing it,” she said. “It contributes a really significant amount to Victoria’s state budget and getting rid of it would severely impact service delivery.”

However, Purcell did say she hoped the government would investigate alternative models as soon as possible, given the growing cohort of people who are finding it increasingly difficult to buy a home.

A spokesman for the Andrews government acknowledged there was no more important issue in Victoria right now than housing.

“That’s why we’re working hard on a housing package and will have more to say shortly,” he said. “We constantly review our revenue system to ensure it is appropriate to fund the services and infrastructure that Victorians rely on.”

The state government flagged its intention to transition from stamp duty to an annual property tax for commercial and industrial properties when it unveiled the May budget. The change will come into effect from July 1, 2024.

Upper house Liberal MP Evan Mulholland, who took part in the inquiry, said the Andrews government could not be trusted to introduce a residential land tax.

“We’ve seen about 50 new or increased taxes [under this government],” he said. “So how are we meant to expect and trust that the Andrews government could move to a land tax when it just loves taxes? It would simply keep the stamp duty ... and you end up with double taxation, like what we’ve seen with Daniel Andrews’ Labor mates in the ACT.”

Libertarian Party MP David Limbrick, who also sits on the committee, labelled stamp duty a “divorce tax” and called for it and land tax to be scrapped, despite the billions of dollars in revenue that flow into government coffers.

Upper house Greens MP Katherine Copsey, another committee member, said stamp duty reform had been put in the “too hard basket” for too long.

“Stamp duty is inequitable,” she said. “The benefits of reforming it include increasing housing turnover and removing an unnecessary barrier to homeownership.”

Labor has three representatives on the nine-person economy and infrastructure committee and has a working majority when in lockstep with the other left-wing representatives from the Greens and AJP.

Get the day’s breaking news, entertainment ideas and a long read to enjoy. Sign up to receive our Evening Edition newsletter here.