Victoria stamp duty hike ‘takes tax policy backwards’
Victoria’s plan to raise stamp duty as part of its $2.7 billion budget repair effort takes the state backwards on tax policy, even according to groups such as the Grattan Institute that support boosting the revenue base with broad-based land taxes.
While the think tank supported Victoria’s plan to widen the land tax base and impose a windfall tax on rezoned land, the Andrews government’s plan to raise $761 million over four years by increasing the stamp duty levied on homes over $2 million made it a “two steps forward, one step back” budget, Grattan Institute household finances program director Brendan Coates said.
Grattan Institute household finances director Brendan Coates.
“It is the most economically costly tax levied by state governments,” Mr Coates said on Tuesday. “Increasing it takes us in the wrong direction.”
The independent research organisation’s comments add to criticism of the Victorian government’s plan to raise stamp duty on property transactions worth over $2 million to $110,000 and levy a 6.5 per cent duty on the value above $2 million – up from the 5.5 per cent rate that currently applies to all properties over $960,000 in value.
The $2 million threshold, almost three times Melbourne’s median $744,679 value in April, means that the premium stamp duty would only apply to less than 5 per cent of Melbourne homes and 0.5 per cent of regional homes and was a reasonable one to set if targeting more expensive properties, he said.
“That said, it’s still not a great tax,” Mr Coates said.
The decision goes against recent efforts led by the ACT, which is phasing the duty out and gradually increasing land taxes, and NSW, which last year laid out plans to allow home buyers a choice of paying stamp duty or paying higher land taxes for properties they purchased.
The move, which Victorian Treasurer Tim Pallas said would bring in an extra $137 million in revenue next year alone, even runs contrary to comments Mr Pallas made last year about the need to reform the way states are funded.
The property industry, which has long attacked stamp duty as a tax that makes property transactions more expensive and hinders labour mobility, has slammed the Victorian proposal.
But so too did Prosper Australia, a research organisation that lobbies for higher land taxes, saying the higher stamp duty could lessen the greater efficiencies that could come from broad-based land taxes.
It will be interesting to see if the stamp duty inefficiencies are greater than the land tax efficiencies.
— Karl Fitzgerald, Prosper Australia
“The rezoning windfalls tax is an attempt to wrestle back the $5.7 billion handed out each year in windfalls and is well overdue,” Prosper Australia director of advocacy Karl Fitzgerald said on Tuesday.
“The stamp duty element will penalise turnover, while land taxes will increase efficient land use. It will be interesting to see if the stamp duty inefficiencies are greater than the land tax efficiencies. They may well cancel each other out in terms of pricing.”
Victoria should be pushing for the abolition of stamp duty, Mr Fitzgerald said.
“Ultimately we would have preferred the government to take the first step towards shifting away from stamp duties and towards land taxes, but it appears Mr Pallas would prefer NSW to lead,” he said.
Federal Treasurer Josh Frydenberg sought to wedge the federal Labor opposition on the issue on Tuesday, telling a budget breakfast hosted by ACCI and Business NSW that the Victorian government went against global moves to lower taxes and showed what a future Labor Commonwealth government would do.
“The Victorian government is now whacking the property sector with higher taxes, and that’s a sign of things to come from our political opponents,” Mr Frydenberg said.
“We’ve gone the other way. We have gone down the path of lower taxes, locking in structural reforms.”
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