Property tax reform should focus on stamp duty

While the debate about negative gearing is dominating headlines, the real killer for property is stamp duty and that needs to change, says REA boss Owen Wilson.

1/6/22: Owen Wilson, REA CEO. The company is doing its first ever investor strategy day. John Feder/The Australian.

Stamp duty is an inefficient tax that worsens housing affordability, accessibility, and negatively affects the broader Australian economy.

At a time when housing supply is not meeting the nation’s growing population, productivity is slowing and the cost-of-living is rising, we should be focused on tax measures that support getting more people into homes. Stamp duty reform is a critical step in achieving this objective.

New research by e61 Institute and PropTrack shows that increasing the rate of stamp duty just one percentage point reduces the number of homes sold by a little over 7 per cent. Put another way, if NSW eliminated stamp duty entirely, an extra 100,000 people would move homes every year.

Stamp duty is clearly an obstacle to mobility, stopping homeowners from buying, selling or moving when they otherwise might choose to, and results in the inefficient use of Australia’s housing stock.

It makes it expensive or difficult to change jobs if the location is further from the jobseeker’s existing home, or forces them into a longer commute, contributing to congestion and ­necessitating further infrastructure spending.

Job changes are an important enabler for productivity and wages grow. Job mobility has slowed over the past couple of decades, which has weighed on productivity and coincides with a surge in the cost of stamp duty.

Meanwhile, older households – many of whom have numerous spare bedrooms – are discouraged from downsizing. A McKinnon Foundation poll found that nearly one-quarter of respondents in capital cities say the costs of downsizing do not make it worthwhile. At a time when we desperately need more housing, making it costly to free up spare rooms and better use the housing we do have is counter-productive.

Saving for a deposit is already a substantial hurdle for many first-home buyers. For new buyers not eligible for stamp duty concessions, stamp duty adds tens of thousands of dollars needed in extra savings, delaying home ownership for months, if not years.

Discouraging people from moving has all sorts of damaging flow-on ­effects, and these problems are becoming increasingly acute because the impost of stamp duty has grown considerably relative to previous generations.

A buyer in Melbourne is today paying six times more stamp duty relative to their income for a median-priced home than a buyer a generation ago. While Melbourne has seen the largest increase, it is not alone. Buyers in Sydney and Brisbane pay more than five times as much stamp duty as those in the mid-1980s. In Perth and Adelaide it is 4½ times, and in Hobart it is six times.

This increase is not the result of intentional policy changes, but instead it has happened because home prices have grown faster than incomes and, critically, because of bracket creep.

Most states have not materially changed their stamp duty schedules in decades. That means that as home prices have grown more, homes have moved into higher-taxing brackets. The consequence of this bracket creep is that 95 per cent of buyers today face a stamp duty rate of at least 3 per cent. In the early 1990s, as few as 12 per cent of buyers did.

Given these drawbacks, state governments should strongly consider reforms to reduce or eliminate stamp duty.

This is hardly a new idea. Nearly 15 years ago the Henry Tax Review concluded: “Ideally, there would be no role for any stamp duties … in a modern Australian tax system.”

While concessions for first-home buyers do help ease the burden for some buyers, these are not available in all states and don’t apply to all homes.

Moreover, these concessions are not the structural solution that is needed to boost mobility because they are, by definition, not available for existing homeowners.

We know that stamp duty reform will be challenging. Stamp duty is a key source of state government revenue. In NSW and Victoria, stamp duty was more than a third of tax revenues in 2021-22.

This high degree of reliance is unusual internationally. Australia is 3½ times more reliant on stamp duty than the OECD average.

But reform is possible and the long-term structural benefits outweigh the challenges. The ACT is halfway through a program to eliminate stamp duty and replace it with a broadbased land tax.

Victoria recently announced plans to phase out stamp duty for commercial and industrial properties over 10 years, something South Australia did in the mid-2010s.

Gradually transitioning away from stamp duty towards a broadbased land tax would provide the most equitable and simplest transition and would move states towards a more sustainable, efficient and fairer tax system.

Owen Wilson is chief executive of REA Group