This is the ‘barrier’ stalling economic recovery: Research
A lack of stamp duty reform has come back to haunt state governments by putting a chokehold on property transactions just when increased home sales are needed to rescue the ailing economy.
New research showed property transactions - a major driver of economic activity - have dropped by nearly a third in some areas since the COVID-19 crisis began, with stamp duty charges deterring buyers and sellers.
A realestate.com.au survey revealed nearly three in four Aussies would be more likely to buy or sell a home if they didn't have to pay stamp duty.
Stamp duty is a tax levied on property transactions and is calculated as a percentage of the purchase price but it has not been reformed in many states for decades.
Part of the reason is that governments have come to rely on the tax to fill their coffers, especially in NSW and Victoria where stamp duty often accounted for more than 25 per cent of annual tax revenue.
NSW's stamp duty system was last changed back in 1986 when the median home price was still under $100,000, resulting in mounting tax liabilities for home purchasers.
Buying a property priced at the current Sydney median of about $885,000 would incur about $35,500 in stamp duty. A property at the same price in Victoria would incur about $50,000 in stamp duty charges.
Realestate.com.au economic research director Cameron Kusher said stamp duty was an inefficient tax that should have been axed some time ago.
Governments have become increasingly reliant on the tax but revenues generated from stamp duty charges have been inconsistent, Mr Kusher said.
"With stamp duty revenue declining in 2018-19 and potentially continuing to fall over 2019-20 and 2020-21, its unreliable nature is obviously becoming a headache for treasurers who are trying to fund projects," he said.
Current incentives giving first homebuyers discounts or exemptions on stamp duty showed just how effective tax reform could be in driving up property transactions, Mr Kusher added.
"Despite NSW and Victoria being the states most heavily reliant on stamp duty revenue, both have seen the value of removing the tax for first homebuyers," he said.
"Lending to this group in NSW (rose) to its highest level since 2009, and in Victoria, it has risen to its highest level on record."
Mr Kusher said stamp duty could be replaced with progressive taxes on land.
"There is a real benefit for state governments if they can move to more consistent and reliable taxation revenue streams rather than unreliable stamp duty," he said.
LJ Hooker head of research Mathew Tiller said work from home arrangements during COVID-19 were encouraging homeowners to consider moving to different areas but stamp duty was thwarting these plans.
"There could be greater migration to more affordable regional centres but the transactional costs of buying a new house may prove to be a barrier to doing this," Mr Tiller said.
"Stamp duty increases the transactional costs and therefore limits the mobility of workers. It stops people moving elsewhere because the cost of buying a new house outweighs the benefit of the move."
Stamp duty also prevented households selling and buying a home to suit their changing circumstances, Mr Tiller said.
"A growing family may decide to stay in an apartment that doesn't suit their changing needs or it may see a retiree remain in a large house as opposed to downsizing to a more suitable townhouse or apartment."
COVID-19 was driving home the need for urgent reform, Mr Tiller added. "Stamp duty is an issue that has been recognised, discussed and debated for decades. It's time to stop kicking the can down the road."
Real Estate Institute of NSW chief executive Tim McKibbin said there were "obvious" economic benefits from trying to increase property transactions.
"Yes, there's agents, but there's also the marketers, the signage producers, the copywriters, the photographers, the IT gurus, the stylists, the surveyors, the conveyancers, the pest and building inspectors, the removalists and more," he said.
"And here's the kicker: because that stamp duty tax is there, the initial real estate transaction that could trigger this chain of events often doesn't occur in the first place. It's that significant a barrier, and even more so right now."
Originally published as 'Barrier' stalling economic recovery