Key Points
- With housing affordability a growing concern, Infrastructure Victoria has called to abolish stamp duty
- Given the tax’s role in State revenue, abolition is not necessarily fiscally responsible
- The state could replace stamp duty with a property tax similar to NSW, or revive past concessions
With the ongoing housing affordability crisis, Victoria’s independent infrastructure advisory body has recommended the State government overhaul the tax system, including abolishing stamp duty.
As part of a plan to create more affordable homes and slow the growth of the city’s urban fringe, abolishing stamp duty could improve accessibility to the housing market. However, the state has become increasingly reliant on property taxes including stamp duty, which now account for more than 40% of state revenue. The other main property tax in the state’s revenue base is land tax, with many landowners experiencing staggering increases in their land tax, between 25% and 150% in some cases this year.
While the abolition of stamp duty would likely ease housing affordability pressures, given its integral role in state revenue there are other more fiscally responsible strategies that Victoria could explore in a bid to ease the affordability stress.
The state could consider a wholesale replacement of stamp duty with an annual property tax similar to that recently introduced in New South Wales. It is worth noting however, that the new annual property tax in NSW is a very watered down version of that state’s original proposal and is currently limited to first home buyers. The approach adopted by NSW eases the cost of entry into the property market for that cohort but it will take decades for the state to see a balanced benefit from a revenue perspective. It also has the potential to create distortions in the property market, with homes that are locked into the annual property tax potentially becoming less desirable than others which are not. Accordingly, it may be challenging for Victoria and other states to implement a similar solution that is financially feasible and still benefits those looking to break into the property market.
An alternative strategy could be to re-enliven the stamp duty concession that applied to new homes in the City of Melbourne. That concession provided a full exemption from duty for new home purchases with a dutiable value not exceeding $1,000,000 where the contract of sale was entered into between 21 May 2021 and 30 June 2021, and a 50% duty saving for contracts of sale entered into between 1 July 2021 and 30 June 2022. If a similar concession regime was reintroduced on a more permanent basis and was extended beyond the City of Melbourne to other inner suburban areas, that could give new home buyers a much needed helping hand and would be more targeted than a wholesale abolition of stamp duty.
Furthermore, resumption of the off-the-plan concession for investment property purchases could act as a catalyst to improve the number of apartments and other properties available for rent in metro Melbourne. With the current shortage of rental accommodation across Melbourne and the city’s population projected to swell from 5 million to more than 8 million over the next 30 years, new housing strategies are critical and access to affordable rental housing will play an important part of any solution. Victoria and Australia more broadly need to seriously consider the imminent increase in housing demand that will follow the expected growth in interstate and international migration. There needs to be a national strategy incorporating stamp duty, land tax, and federal taxes such as the GST.
Moving forward, a critical reassessment of relevant taxes and strategies will be necessary in tackling the housing crisis in a practical and fiscally strategic manner.
