New Research Takes Aim at Stamp Duty
Stamp duty is both an increasingly expensive tax and a highly inefficient one, according to joint research by the e61 Institute and PropTrack.
Four decades ago, the average buyer in Sydney, Melbourne, Brisbane and Adelaide needed to work for about one month to afford to pay stamp duty, based on comparing the average post-tax income with the median-priced property of that time. Today, though, it takes about six months’ work in Sydney and Melbourne, five in Adelaide and four in Brisbane.
PropTrack Senior Economist Angus Moore said there were two reasons stamp duty had become more expensive.
First, property prices have grown faster than incomes.
“Between the early 1980s and today, median prices have increased two to three times faster than incomes. That means that stamp duty has also increased faster than incomes,” he said.
Second, stamp duty tax brackets have not been adjusted regularly enough to account for higher property prices.
“Each bracket pays stamp duty equal to the amount that a home just below the bracket pays, plus a higher ‘marginal rate’ for every dollar the purchase price exceeds the bracket threshold. These marginal rates get higher with each successive dollar,” Mr Moore said.
“This structure of higher marginal rates kicking in as the sale price crosses a particular threshold means that average tax rates – the stamp duty paid divided by the purchase price – increase as the price increases.”
Stamp duty vs land tax
Higher stamp duty costs aren’t just an irritant for buyers – they also have a negative economic impact, according to the e61 Institute-PropTrack report.
Stamp duty costs “dull economic vibrancy by reducing the frequency of purchases and moves,” the report said.
“Using a natural experiment when Queensland hiked stamp duty in 2011, we show that for each percentage point stamp duty rates rose, the volume of home purchases fell 7.2%. Separate data show that the rate of people changing addresses was similarly affected.”
Inhibiting the movement of people may reduce economic growth.
“Since the mid-90s, stamp duty has tripled relative to income and annual labour productivity growth has dropped from 3% to 1%. While many things determine productivity, we do know that: a) job switches are associated with wage and productivity gains; b) the productivity slowdown has coincided with a decline in job switching; and c) switching jobs can require moving,” according to the report.
As a result, the report argues the economy would benefit if stamp duty was replaced with a land tax.
One reason is that the revenue from a land tax would be more stable than from stamp duty, because it wouldn’t be subject to the volatility in property purchases.
Also, a land tax would be more efficient because it:
- Would not penalise people movement.
- Would incentivise efficient use of land.
- Would have an immobile tax base (so dodging would be difficult).
- Would capture unearned economic rents generated by land zoning.
Get in touch if you’re planning to buy a property. I can advise you on how much stamp duty you’ll have to pay and manage your home loan application from start to finish.