The NSW Treasurer has been for many months floating the idea of abolishing stamp duty on the purchase of properties and replacing the one of stamp duty with a yearly property tax. Many people are attracted to the idea.
They think they will not have to fund that huge stamp duty payment when they buy a home. My parliamentary colleague, Anoulack Chanthivong, Member for Macquarie Fields analysed the effect of this policy charge in a speech to the NSW Parliament. It is worth reading. He calls it "the snake oil salesman’s pitch" His speech is below.
Mr ANOULACK CHANTHIVONG (Macquarie Fields) (18:12:58): Every so often in political life, we get the odd economic snake oil salesman spruiking their political ideas as the public policy panacea for all our ills. The snake oil salesman promises "jobs boost by the hundreds and thousands, skyrocketing economic growth by the billions and savings in the many thousands for people doing it tough". But with careful analysis and an evidence‑based argument, the snake oil salesman's pitch does not deliver magical economic unicorns; it can actually be harmful.
The Treasurer's proposed snake oil property tax panacea will replace a one‑off tax with one that never ends. Somehow getting rid of stamp duty will solve all our property market ills. The Treasurer might be a Gordon Gekko, high‑flying corporate lawyer, but I question his slick economics marketing of replacing a one‑off progressive tax with a never‑ending regressive land tax. The Treasurer, and Premier aspirant, has been recently making big media statements about his reform vision.
Let me remind the House of the Treasurer's recent reform accomplishments. He could not even deliver the Fire and Emergency Services Levy—a proposal only a fraction in difficulty and complexity—when it had been handed to him on a platter and he has proposed an increase to the GST on food and the cost of living.
The Treasurer is an A‑grade policy spruiker but a D‑grade policy deliverer.
Property prices do not go up or down because stamp duty exists or is taken away and replaced with a never‑ending annual land tax. To suggest they do is at best deception and at worst just plain absurd.
Any good economist knows—and I am but a mere humble working‑class economist from Macquarie Fields—that property prices are reflective of demand and supply factors, namely, the ease in accessing credit, the price of credit, people's current and future expectations of their employment and income and property stock supply and the timing of that supply and population growth.
A 2020 study by the Australian National University and University of Canberra modelling the impact of the Australian Capital Territory's stamp duty reform to a land tax system produced the following findings: House prices increased by 9 per cent; units increased by 4 per cent; housing sales decreased by 6 to 7 per cent; unit sales decreased by 23 per cent to 24 per cent; and potential new home owners used the illusory stamp duty savings to bid up property prices.
Using the above facts, let us run through a scenario: A young aspiring couple wants to buy a home in Leppington which has an expected value of $800,000 and unimproved land value of $500,000.
The couple will pay an estimated $31,000 in stamp duty. Under the new snake oil, never‑ending annual land tax market conditions, the expected property increases by 9 per cent, or about $72,000, meaning the winning bid for the property is now $872,000.
The snake oil, never‑ending annual land tax is equal to $500 plus 0.3 per cent of $500,000 or about $2,000 per year, increasing every year the couple lives in that house.
CoreLogic property data shows that the length of home ownership continues to rise, with home owners in some suburbs holding onto their property for more than 20 years. In some parts of south‑west Sydney on former greenfield estates like Leppington, properties are held for greater than or equal to 15 years.
So the expected land tax is $2,000 times 15 years, which equals $30,000. That does not include any annual compounding interest on land value or rate increases. This is the end result: Under the Treasurer's magical, snake oil, never‑ending land tax, the home owner pays $72,000 more to purchase their property, plus a $30,000 tax bill on their home.
The Treasurer has potentially cost them up to $102,000 under this scheme. No matter your linguistic abilities, that is a lot of money in anyone's language. The never‑ending annual land tax would be more than $30,000 if the property is kept for more than 15 years.
When the home owner does move, they are just as likely to pay a new snake oil, never‑ending annual land tax on their next home for the rest of their life.
No doubt there will be interjections that this is an optional scheme. Let me also say that the fact that it is an optional scheme makes it an adverse selection one—that is, those who can least afford it or are in a tighter financial situation will opt for the land tax because they have been sold a stamp duty savings pup. Those who can most afford it will pay the stamp duty and not have to worry about a tax bill arriving in their letterbox every year.
The Treasurer's snake oil annual land tax is in effect a double taxation system in higher property prices and an increasing never‑ending land tax. Double the property tax and higher property prices? No, thank you.
Time does not permit me to say more about this snake oil, never‑ending land tax, but I will make further factual‑based arguments to reinforce the old aphorism of "anything that is too good to be true usually is".