Treasurers from each state will meet in Brisbane on July 22 to discuss a bunch of (largely) boring tax stuff. However, there will be one juicy topic on the agenda — stamp duty.
So what the bloody hell IS it and why should potential home buyers care?
What is stamp duty?
Stamp duty is essentially a land transfer tax.
If you buy a property, you pay the price of the property to the previous owner PLUS a tax to the relevant State Government.
According to VicGov’s stamp duty calculator, if I buy a house for (Dr Evil voice) “one million dollars” in Melbourne, I will also need to pay the Victorian Government approximately $55,000.
This amount of tax I pay varies depending on several factors including whether I’m an Australian citizen and for what purpose I’m using the house.
For example: am I buying the house for business, residence, or building a giant animal sanctuary where I can live peacefully alongside my 1,000 adopted piglets?
Why do the state treasurers want to chat about stamp duty?
Housing affordability is a big problem in every state. PEDESTRIAN.TV reported in April that 67% of young Aussies believed homeownership was impossible.
The stamp duty tax can be very discouraging to home buyers, given it adds another dollop of cash to an already expensive price tag. This is especially true for home-owners looking to downsize into a smaller property.
Say for instance your parents want to move out of the three-bedroom house you and your adult siblings grew up in. Instead, they want to move into a one bedroom unit.
They might decide against it because the upfront tax on purchasing the one bedroom uni is too high to justify the move.
This means there are only two people living in a house built for five.
A younger couple with small children who could’ve lived in that house will now have to live somewhere else.
A reduction in the transfer tax could help potential home buyers, but there’s a slight problem.
Stamp duty is a HUGE money maker for state governments. I’m talkin’ MASSIVE.
In the previous financial year 28% of New South Wales’ total tax haul was from stamp duty as was 27.2% of Victoria’s as per The Age.
If the states were to reduce the tax in the hope of encouraging more home buying, how would they make up the lost cash?
The federal government and stamp duty.
The might be some help on the way with Anthony Albanese‘s new federal government indicating it’s down to chat.
“We want to work with them (the states) to address the substantial challenges we all confront in the economy, and in our budgets,” federal Labor treasurer Jim Chalmers told The Age.
NSW Premier Dominic Perrottet floated the idea of swapping stamp duty for an annual land tax. This annual land tax would mean that buyers could pay the tax gradually, over a longer period of time (over years or even decades!).
This would mean less upfront fees for buyers and could potentially encourage purchasing.
The state governments would be hoping that if they were to swap a yearly tax, the federal Labor government could assist by making up their loss of revenue in the short term.
Could changing property tax policy really increase home buying rates?
Yes and no.
Reducing the one-off, upfront tax burden on home buyers could incentivise purchasing. However, the housing problem in Australia largely due to there being simply being not enough houses.
It may take decades to build enough affordable housing to fix what has become a generational issue.
The best short-term solution (in the eyes of the NSW state government, at least) is to adjust the taxation system and attempt to soften the blow for home buyers.
Plus, if you’re a potential first-home buyer, there’s good news. You’re most likely exempt from stamp duty anyway.
It depends on how much your first-home costs and which state you live in, but chances are you’re up for some state government assistance. Heck yeah!
No doubt there will be further updates after the state treasurers meet on July 22.
For now, may all your auction bids be confident and may all your real estate agents not be fuckheads (slim chance).