Alex Hart talks alternatives to the dreaded stamp duty.

We can all agree that stamp duty is bad. What we need is a better alternative.

Stamp duty is a bad tax. I’m not just saying that because I need to buy a bigger house. It’s a bad tax for reasons bigger than my own hip pocket. And I’m far from alone in thinking this.

At a time when housing in Sydney is in short supply, and first home buyers are finding it increasingly difficult to enter the market, governments should be doing everything they can to encourage the free flowing movement of properties. Stamp duty discourages people from buying and selling property. It discourages the older couple from downsizing their home after the children have left. It discourages the young couple from moving house in order to be closer to job opportunities. These are the sorts of transactions we should be promoting in order to free up and reduce the cost of residential property in Sydney.

It’s not a fair tax. It disproportionately penalises the young, who generally move around more as their family and employment situation changes. It benefits those who stay put in the same home for long periods of time – generally older and more established (ie wealthy) people.

Its volatility makes it a far from ideal source of government revenue. Just a small decrease in house prices will quite significantly affect the revenue flowing to government, and there is no guarantee that a slowing of the Sydney housing market will be foreseeable in its timing or extent. That’s hardly a good basis on which to plan public spending into the future.

But don’t expect things to change any time soon. The NSW Government collects a massive amount of revenue through stamp duty – $7.29 billion or 28% of tax revenue in the 2014-15 financial year. Clearly, we can’t get rid of it unless we have something better to replace it with.

To add to the problem, all state governments are facing growing revenue shortfalls in coming years. New measures are needed just to keep up.

A few alternatives have been suggested, including placing a capital gains tax on the family home (yes, it’s a federal tax but let’s not quibble, it would be political suicide so will never happen anyway) and increasing the GST (not necessarily political suicide but requiring more bravery than any of our current leaders can muster).

Possibly we could double the number of poker machines in NSW. Perhaps we could make their use mandatory or give school children lessons in their use (I’m sure Clubs NSW would assist).

One slightly more palatable option that may be worth looking at would be a low and broadly applied land tax on all residential properties.

Many will no doubt bulk at the idea of a tax on the family home. However, it’s a much fairer and less volatile way in which to raise government revenue. There would be few exceptions across the board, and those who own no property (generally the poorest) would pay nothing. Importantly, it would encourage property transactions and make housing more affordable.

Modelling done by the Grattan Institute concludes that a land tax of just o.1% of value ($785 a year on a median Sydney home) would raise $2.5 billion a year in revenue, enough to cut stamp duties by over 30 per cent.

Land tax is already a state tax so NSW doesn’t need to rely on the agreement of any other governments. Mike Baird scored some points in the courage department by proposing an increase in the GST, but then it’s not really his tax to increase. If he really wants to show us his metal here’s an achievable revenue source that he could look at tapping into. He could use it to replace a poor tax like stamp duty, or to make up for revenue he says the Feds are ripping out of NSW, or to achieve a bit of both. All it needs is a strong leader to argue its case.

Unfortunately, and despite lobbying from the real estate industry, the Baird Government failed to include a review of stamp duty in the recent State Budget.

Despite many good arguments and voices in favour of change, it looks like stamp duty will continue to be our (and my) burden to bear.

Alex Hart is the Principal and Director of Hart Estate Agents and a high achieving sales agent. He’s a keen follower of and commentator on the market, real estate trends, and online and digital marketing and technology. Read more about Alex and his recent sales here.

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