Should the government do away with stamp duty?

The-government-is-planning-changes-to-the-tax-system-_157_6008345_0_14091465_300One of the common threads in all the talk about real estate affordability has been tax – particularly stamp duty. The release of the federal government’s tax discussion paper earlier in the year raised the possibility of big changes to Australia’s tax framework and, since then, members of the housing industry have been quick to have their voices heard on the issue. So what’s all the fuss about stamp duty, anyway?

Stamp duty grows

The Property Council of Australia has been one of the loudest advocates of abolishing stamp duty across the states and territories, and new research could show why they are so adamant it needs to go. The Property Council analysed the amount of stamp duty homebuyers have been paying over the past twenty years with interesting results. Figures show that average stamp duty costs have increased by between 527 per cent and 795 per cent, and Sydney real estate in particular has born the brunt.

Over the life of a mortgage, the true cost of stamp duty for Sydneysiders is around $61,542, which Property Council Chief Executive Ken Morrison said is far too high. He pointed out that if left untouched, this tax could stop some buyers from entering the property market. Fortunately, the government has the chance to take the bull by the horns and remove stamp duty from the equation once and for all – something that would be a great benefit for those buying an apartment or house.

In particular, its submission to the government’s discussion paper suggests that the government look to more efficient revenue streams.

“Getting rid of stamp duty needs to be a top priority of national tax reform and every government in the country,” Mr Morrison said.

The government could pursue a bundle of other changes, as well. The Housing Industry Association (HIA) have also recommended that the government remove stamp duty, but said it isn’t the only answer. It suggests that reform needs to take a large array of factors into account.

HIA Chief Executive Industry Policy and Media, Graham Wolfe, said taxes that affect new home building also need to be looked at. For instance, he pointed out that addressing GST on new homes and reducing or cutting out developer levies could bring down the cost of buying a house.

Negative gearing to stay 

Negative gearing has also been brought into the equation. The government may have ruled out changes, but the opposition has hinted that reform could be on the cards down the line. The Property Council has recommended these tax incentives stay in place – something that would come as a relief to investors. The submission outlines that everyday Australians should be able to use this strategy to save for the retirement, and that removing it would be counterproductive. In fact, the report points out that it could even undermine the number of houses for rent.

In a June 16 blog post, CoreLogic Senior Research Analyst Cameron Kusher has echoed this point for the most part, suggesting that calls for negative gearing to be removed are misplaced. He notes that it can make property investment an attractive idea for many people, but the idea that it drives up house prices doesn’t have much grounding.

“While the removal of negative gearing may help improve the budget bottom line it is unlikely to be the silver bullet which improves housing affordability,” Mr Kusher said.

“Any discussion about improving housing affordability shouldn’t solely focus on just one of the issues such as negative gearing, rather it needs to look at all of the factors which contribute to high housing costs.”

With these points being discussed at length over the past few months, it could suggest that policy wheels could be in motion in the not-too-distant future.

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