Should Stamp Duty Go

Date: 25 October 2011

The Real Estate Institute of Australia (REIA) has called on the government to abolish all stamp duty on residential and commercial property. Their case is based on their view that stamp duty is too high and with rates ranging from four per cent to six per cent of the price of an average home (depending on which state or territory you live in), it is unfair and “disharmonised.”

When considered in the light of incentives for first home buyers lack uniformity, ranging from no concessions in Tasmania to concessions only available for new homes up to the value of $600,000 in New South Wales, stamp duty is an impediment to labour mobility. The REIA believes it discriminates against those who move to where jobs are and those who need to downsize, predominantly the elderly.

Evidence that measures need to be put in place to assist first home buyers is highlighted in the REIA’s latest Deposit Power Housing Affordability Report. The report shows a considerable decline in housing affordability over the past 12 months and a decline in the number of first home buyers in the market to 15 per cent; down from 30 per cent in 2009.

The costs of buying
Stamp duty is a heavy burden for home buyers’ especially first home buyers who cannot avail themselves of state by state stamp duty exemptions. However it is often buyers one calculation that become a problem in terms of borrowing capacity. Often it is a case of buyers pushing the limits of their affordability rather than stamp duty alone being the inhibitor.

As we all know the Australian dream doesn’t come cheap, that explains why if you’re a typical consumer you’re carrying more than $5,000 in credit card debt and probably at least that much in some other form of loan that is not in the category of good debt. These will count against the buyer in the loan application. Sure, debt is a natural consequence of modern life, so the challenge is managing the debt people have, and learning what debt is viable to hold and what not to hold.

These are all important considerations in the overall affordability equation and the bank’s assessment of what a borrower can afford. A lender will take into account deprecation items when assessing your affordability thus it is something which needs to be carefully assessed.

Stamp duty may be an inefficient tax but it is also a massive revenue generator for state governments and will not be given up easily. Federal and state incentives to first home buyers often act to distort markets and often simply shift vendor expectations up in line with the cash incentives, stamp duty being a major one.

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