State government stamp duty, the onerous impost on home owners when they sell, is often accused of preventing retirees from downsizing out of the family home they might be rattling around in with the kids having flown the coop. This explains why some family homes haven’t come to market for 40-plus years.
But it’s not just retirees who are affected.
High stamp duty costs discourage people of any age from relocating for a new job, or finding a bigger home for a growing family.
In principle, state governments have often toyed with the idea of getting rid of stamp duty. However, given that it accounts for around a fifth of all state and local government tax revenue, they're not so keen.
Annual land tax
However, within Infrastructure Victoria’s recently released draft 30-year plan - outlining how the state can grow sustainably – is a proposal to replace stamp duty with an annual land tax.
Based on Infrastructure Victoria’s numbers a proposed annual land tax would only cost between $1 million and $5 million to implement and save home buyers big money.
Stamp duty is one of the biggest barriers to selling up. In 2022-23 Victorians alone paid around $9 billion in stamp duty costs associated with moving house.
Based on research by Victoria University’s Centre of Policy Studies, stamp duty adds around $40,000, or 5.3%, to the cost of purchasing the average Victorian home.
Instead of a large, one-time tax when buying a home, Infrastructure Victoria suggests all landowners pay a smaller tax annually to fund schools, hospitals, and other infrastructure more sustainably.
ACT example
When searching for clues as to how Infrastructure Victoria’s proposed land tax might work, Victoria University’s Centre for Policy Studies looked at similar reforms in the Australian Capital Territory (ACT).
Stamp duty has been gradually phased out in the ACT since 2012.
Every year the ACT government sets a target for how much money it needs to raise. Landowners pay an amount commensurate with their land's value.
The study found that by raising money more efficiently a land tax didn’t discourage investment or economic activity.
Around 80% of the economic boost came from removing stamp duty.
Transaction data from the ACT also suggests that each 10% reduction in stamp duty rates drives a 6% rise in property transactions.
Greater affordability is unclear
However, despite economists concluding that land taxes would reduce land values – and make housing more affordable – the impact of removing stamp duty [on house pieces] was less predictable.
According to Victoria University’s previous research, the effect on house prices depends more on how often properties are bought and sold.
For example, given that apartments tend to change hands more frequently than houses, removing stamp duty tends to push up apartment prices more than house prices.
To make the system fairer, Victoria University suggests policymakers adjust land tax application.
One option is to introduce a fixed-rate component, as proposed in New South Wales.
Then there’s the 15 years ago Henry Tax Review, which suggested pegging the tax to the per-square-metre value of land.
Overall, if all state governments implemented this reform, Victoria University’s researchers suggest Australian households would ultimately be better off by about $1600 per household per year.
Meanwhile, the Victorian government is seeking feedback on the draft plan before releasing the final version later this year.
