News from the front desk, Issue 505: The NSW government wants to do with land tax and stamp duty what it’s signalled it’s doing with energy and climate policy: something radical, innovative and what advocates have urged for decades.
The tsunami of congratulatory media that followed on Thursday urged Victoria, another jurisdiction with high stamp duty, to follow suit.
You can’t blame the governments in both states with the biggest value properties from ogling the rivers of gold that come from property. It’s immovable, after all, and lucrative: a massive $423 billion gain in land value in Australia in the 2019-20 year, despite Covid.
But the benefits of this admittedly revolutionary (should we say courageous?) move are nowhere near as clear and uncomplicated as the benefits that would come from stronger climate action.
The downside risks from the latter are mainly the job disruptions from a dying industry – coal and other fossil fuels – and the urgent need to find replacement employment.
When it comes to property, especially our homes, the repercussions are potentially much greater, more widespread, and because we’re dealing with tax, more vulnerable to unintended consequences.
Right now, we have a property market on fire. Sale prices last weekend left real estate agents gobsmacked – more than $700,000 over reserve in one inner city sale; in Sydney $1.4 million over reserve. In a hamlet north west of Melbourne an impromptu auction with five or six interested parties netted $417,000 over reserve.
Sure, our immigration has plunged by 85 per cent or so, from about 220,000 a year, but nearly half a million people have also just returned to Australia.
This roaring market, fuelled in large part by record low interest rates, means people not already in the property market and unable to join it soon may well be left further and further behind because it’s increasingly obvious that the federal government will support the property industry first and foremost.
So how we tax or don’t tax property will have a big impact on the future lives of the people in our society.
There are two taxes in play here; they are not mutually dependent nor exclusive. In fact, we already have land tax in most places for a second property.
What’s proposed by NSW is to remove stamp duty and add land tax to the family home. It already exists for investment properties.
The Australian Capital Territory is currently eight years through a transition away from stamp duty to land tax that will take about 20 years to complete and has attracted significant research and observations. Strange thing is, that as far as we can gauge, this radical move has had little impact on the market there.
So why has there been such excitement about removing stamp duty in one of the most expensive property markets?
For decades, property advocates and economists have called for this, saying stamp duty is inefficient and a friction on sales.
But is it?
When you buy a property there are loads of on costs, the agent’s fee for a start, then the solicitors, removalists and so on. The tax generally gets lumped into the mortgage.
So says economist and housing researcher Cameron Murray, post doctoral researcher at Henry Halloran Trust, The University of Sydney.
Another researcher, Karl Fitzgerald of Prosper Australia, says the tax is unfair because buyers pay the government but also the banks through the interest in their additional loans. If they buy two or three properties in their lifetimes, that’s a lot of interest the banks get.
The economists and property advocates say people need to move around, get closer to jobs. But is it the stamp duty that stops them if they live in the burbs and are sick of the 2.5 hour commute and the road tolls, or is the real disincentive the obscenely expensive houses in the inner city where they might like to move to?
Property is lumpy. A huge asset. Why do we think we should buy it and sell it on a whim, or even as an efficiency gain? It’s not a car. It’s the most important asset most of us (the lucky ones) will ever have.
It’s our home, or should be. We live in a community. We raise children, bond with our neighbours, frequent the local shops, contribute to the planning for our neighbourhood.
As every major council or researcher on climate knows these days, our most resilient preparatory action against violent climate is our community. If we move around like nomads, we lose that, we become even more atomised than our screens are already making us.
Maybe, however, it takes the heat off the government. Everywhere the big call for decades has been for governments to stimulate job creation close to where people live. And provide better transport.
If people can move closer to jobs then suddenly it’s their call; their fault if they don’t move and get the work on offer elsewhere.
Moving people like a jigsaw pieces is not the same as shifting around your raw material and other inputs to the parts of the country or the globe that are more efficient.
It’s a scenario that looks more like the hot desking that was all the rage. And we know how that story ended. If it wasn’t for Covid there’d be even more depressed people wondering how they’d get through another day sitting next to strangers, no sense of connection or bonding. Just a widget fitting into the most economically efficient mode of production.
Covid has revealed our human drivers are much stronger than Taylorism would have us believe.
Of course, people aren’t forced to move but you can just hear the growing clamour that if you don’t move to the other side of the country to pick up a lucrative job then you don’t deserve support to stay where you are.
There’s an argument that better, higher taxing of land means that we will probably pay less for it. That’s an argument, but it’s unlikely to be right. In fact, well located property is likely to only get more expensive as planetary and other environmental or social pressures grow.
The argument is that if we are forced to pay tax on land we will make sure it’s more productive. We’ll improve its amenity, get rid of the rattly big old house and densify the block, or move to a cosy apartment and sell the thing.
Karl Fitzgerald likes the idea.
“We would love to see the Victorian government follow the NSW government’s lead,” he says. And he’s been advocating for this for several years.
The beauty of land tax is it’s the tax you can’t avoid, he says. And it captures foreign investor windfalls.
It’s also fair, he says, because of the record infrastructure spend several governments are making, many of which add to the value of property and is a way for the government to claw back a share of its investment. You only have to look at the price of property around new railway stations.
And there can be provisions for people on low income such as pensioners to defer tax until their death or sale of the property. The ACT has such a provision but interestingly, people tend not to take it up. Probably, we think, a fear of extortionary reverse mortgages.
Fitzgerald also likes the steady nature of the income for the government, which allows it to plan longer term.
Cameron Murray says his work has made him change his mind on this view that he previously shared with Fitzgerald. Steady income is not necessarily, of itself, a good thing for governments.
A stamp duty can have a calming effect on a booming market, for instance.
Murray thinks removal of stamp duty will make investors more likely to sell more frequently – since more, faster transactions is the objective of removing stamp duty. The consequence of that could well be to leave renters more vulnerable than ever to sudden eviction.
Fitzgerald argues that higher land tax will deter investment overall. Is this good? Only if buying instead becomes more affordable.
Several people have also pointed out a curious element to the NSW government’s announcement.
The treasurer Dominic Perrottet says people will initially be able to choose if they want to pay the stamp duty or land tax, as a phase in strategy.
But why so shy? The argument is consultation, industry engagement, community feedback and so on.
But as Murray points out, when the government earlier this year halved land tax for build-to-rent housing, it did it overnight. No consultation, no careful tilling of the political landscape beforehand.
One argument is exactly that: the political landscape and the potential to politicise (or weaponise) this proposal. It IS a new tax after all and it’s unavoidable, like the GST. That has got to hurt.
It’s possible crowds such as the Daily Tele, for instance, might say it’s an attack on the rich. Some kind of class envy warfare (from within traditional supporters of the privileged).
The potential is the tax will be the only way to capture the astronomical windfalls from the rising price of mansions that are currently tax free. (And the gains can look exponential when you get into the multi million categories.)
To ward off such potential charges from media loose cannons Perrottet proposes to continue to impose duty for properties at the top 20 per cent of the market. You have to wonder whether landtax would be more beneficial for the state.
And if you can choose to still pay stamp duty but not land tax does this mean there might be no change at all if you don’t want it?
Hal Pawson, associate director, City Futures Research Centre, says the idea of having a choice to pay up front or chose to pay land tax is very strange.
“To me, it suggests a lack of confidence about the principle of it. Because that’s sort of saving we’re leaving open the possibility of keeping open something that looks very much like stamp duty.”
Why the lack of confidence?
From an administrative point of view, the challenge of making this work is massive, he says.
So, what just happened?
Not much really.
The possibility is it’s another flag being run up the flagpole? A distraction to the multiple scandals trying to stick to the seemingly Teflon coated Gladys Berejiklian?