17 October 2008
The Urban Taskforce today welcomed a finding by the NSW Governments independent umpire that stamp duty on property was inequitable and the worst of the major state taxes.
The Tribunals report confirms that NSW collects more tax revenue as a proportion of its economy than any other state and more tax revenue per capita than all states except Western Australia. The tribunal was most critical of stamp duty on property purchases which raises $4 billion for the government each year. The Tribunal said the tax ranked the lowest, of all the eight taxes considered.
The Tribunal revealed that bracket creep had increased the burden of stamp duty rates on the sale of a median priced home by 90 per cent in the last 20 years. In 1987 stamp duty accounted for just 1.9 per cent of the median house price, by 2007 bracket creep forced this tax rate up to 3.6 per cent of the median house price.
Stamp duty rates for the typical home have almost doubled in the last 20 years, Mr Gadiel said.
This has made new housing more expensive than it needs to be.
The Tribunal said that stamp duty on property purchases scores poorly for efficiency because it distorts investment decisions. The Tribunal also found that the tax discourages property development for resale, because it was levied on the improved value of the property.
Property developers are taxed several times over like everyone else they pay income tax and then they also pay stamp duty and GST on the increase in property value that comes from development, Mr Gadiel said.
Thats on top of the numerous state and local infrastructure charges that, in themselves, can add up to $90,000 for every new home.
The Tribunals report says stamp duty on property purchases may prevent businesses from adjusting to changed market conditions with particular impact on new or growing businesses and on the development of new commercial property.
The report found that the tax was inequitable – with less affluent taxpayers who move house paying more tax than affluent landowners who do not move as often.
The Tribunal recommended that the NSW Government move in the short term to reduce its reliance on stamp duty on property purchases and make it more equitable by adjusting the tax rates to account for bracket creep.
This is represents a long overdue acknowledgement that stamp duties on property purchases are harming NSW, Mr Gadiel said.
In the last four years the real value of NSW building work has collapsed by 15 per cent; while over the same period in Victoria it has increased by 8 per cent in Queensland it has shot up by 21 per cent.
Stamp duty is one of the reasons that NSW has struggled to secure the housing and well-located employment that it so desperately needs.
Mr Gadiel said that its great to see official recognition that this tax may be preventing the States stock of commercial and residential properties from being used to their full potential.
However, the government should not try to fund stamp duty reductions with increases in other State taxes such as land tax, Mr Gadiel said.
The best solution would be to get a better allocation of tax revenue between the Federal and State governments.
The Federal Government raises more than 80 per cent of the total tax revenue collected in Australia which is significantly more than it needs to meet its spending responsibilities.
Some of this cash should be used to reduce the states reliance on property duties.
The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.
