Stamp duty inquiry to weigh up Victoria’s ‘worst tax’

Victoria’s upper house has voted to establish a wide-ranging parliamentary inquiry into stamp duty, a tax that many economists say hurts housing affordability and productivity.

Upper house Liberal Democrats MP David Limbrick, who moved the motion to establish the inquiry, said removing stamp duty would take one pressure off home buyers.

“I think stamp duty is the worst tax in Victoria,” he said. “It negatively affects housing. It negatively affects labour mobility. It affects efficient allocation of housing.”

Upper house Liberal Democrats MP David Limbrick.Credit: AAP

In Victoria, stamp duty is determined by the sale price of a home or the property’s market value, whichever is greater. There are exemptions for first home buyers and people buying off the plan. A home with a dutiable value of $745,000 will incur about $40,000 in stamp duty.

Victoria’s inquiry will look into the impact of stamp duty on housing supply, labour mobility and the overall efficiency of the tax system.

Given the size of Victoria’s debt – tipped to reach $162 billion by 2025 – the Legislative Council’s economy and infrastructure committee will also examine any changes to revenue forecasting if stamp duty were to be ditched. For much of the past decade, stamp duty has brought in more than $5 billion in revenue for the Victorian government each financial year.

Limbrick’s view of stamp duty is backed by most economists, who say that large one-off taxes are prohibitive for home buyers.

AMP Capital chief economist Shane Oliver said stamp duty could discourage older Australians from downsizing and deter workers from moving to better-paying jobs.

“Stamp duty distorts people’s decision to buy or sell property,” he said. “It makes it hard in the first instance because you’ve got to raise the $40,000, or whatever it is. And it dissuades you from selling when you otherwise would have.

“So it makes it harder for new entrants in the property market and empty nesters.”

The International Monetary Fund’s latest report on Australia backed moving away from stamp duty in favour of land taxes.

The NSW Liberal government has taken steps towards such a system, allowing some home buyers to opt in to an annual land tax rather than pay stamp duty upfront.

Oliver said a shift away from stamp duty, while welcome, would create additional headaches for Victorian Treasurer Tim Pallas.

“You give up a lot of upfront revenue [when the property market is booming] if you swap it for a long-term, more sustainable stream. Someone might have paid $40,000 on stamp duty for a property. The equivalent on land tax might be $1000 a year.”

Asked whether he was concerned the inquiry could result in a higher tax rate for Victorians overall, Limbrick said: “I’m always concerned when it comes to Labor and taxes, but my hope is there is genuine interest in making a more effective tax system.”

A Victorian government spokesman said: “We constantly review our revenue system to ensure it is appropriate to fund the services and infrastructure that Victorians rely on.”

The inquiry is due to hand down its report within six months.

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