Abolish stamp duty, buy a new house and put $50,000 in your pocket
How would you like a $50,000 cheque from the Morrison government? It’s enticing and if the Property Council of Australia has its way, it could be reality.
The caveat: you have to buy a freshly built home.
The Property Council has devised a seven-point, $2.5 billion plan that it believes will kickstart the Australian economy post the COVID-19 pandemic.
There are caveats to this proposed scheme.
The government would have to fund the scheme to the tune of $2.5 billion and it would be limited to the first 50,000 purchases.
The Council proposes the scheme to run for a 12 month period between 1 July 2020 and 30 June 2021.
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A boost for construction
Under the Property Council’s seven point plan for economic recovery, a proposed 50,000 new dwellings would be built. This would support more than 200,000 jobs and bring forward market demand for new housing, boosting consumer confidence.
The construction industry could do with some feel good news.
The construction sector employs more than 1.1 million people and has had to shed at least 5 per cent of its workforce since the economy began to shut down in March. Meanwhile, contract cancellation rates in the home building sector reached more than 30 per cent.
“Housing construction risks being a drag on economic recovery, not a driver of it,” the Council stated.
The problem is that while current construction is continuing, the pipeline is drying up with the Council concerned that demand for new housing construction was set to “fall off a cliff”.
The Council is of the view that the creation of new homes, apartments and retirement living units, will reverse the current job loss trend within the construction sector.
The Reserve Bank of Australia (RBA) is also concerned about the squeeze put on the construction sector, noting in the minutes of its most recent meeting that a drop in employment, incomes and wealth will have a direct impact on general consumer spending.
Should we abolish stamp duty?
The Council is also calling for the abolition of stamp duty, the broadening of the GST and a foreign investor surcharge relief.
Looking specifically at stamp duty, there has been a groundswell in recent weeks to remove what is considered to be a highly obstructive tax.
New South Wales politicians look to have reached bipartisan agreement over stamp duty reform, brought on by the economic damage done by COVID-19.
Research conducted by the Housing Industry Association (HIA) illustrates that Australian taxes and regulatory costs make mortgages for home buyers 60% to 100% more expensive.
People may have begrudgingly accepted these taxes before coronavirus reared its ugly head. They would factor stamp duty into what they could afford, which oftentimes put their dream home just out of reach.
It’s a different story now. Tax reform is required to kickstart the economy, including the industries that drive it. The abolition of stamp duty is an obvious move to achieve this aim.
South Australia has been a leader in stamp duty abolition.
The South Australian Government first abolished Stamp Duty on commercial property, attracting investment and creating jobs. Canberra is also phasing out stamp duty.
NSW could follow a similar path and the Victorian government may also follow suit as Melbourne home buyers currently spend the most on stamp duty, paying approximately $50,171 for a median-priced house of $918,350.
A saving of $50,000 could go a long way if all reforms come into play: that’s $50,000 saved on stamp duty and $50,000 in your pocket for buying a newly constructed home.
Surprisingly, while Sydney’s median house price is $250,000 more than Melbourne’s, its home buyers pay less in stamp duty. Stamp duty impost on $1.16 million home in Sydney is $49,586.
Interestingly, when Victoria scrapped stamp duty for first-home buyers on properties up to $600,000, the state saw strong price growth at the lower end of the market as buyers had more to spend.
Ten per cent of all government revenue is raised from taxes on housing, with housing being one of the most heavily taxed sectors of the economy.
However current tax imposts escalate prices and put Australians under undue financial pressure.
The pressure is now being exacerbated by COVID-19 and the financial hardship it has caused.
Tax reform is long overdue and the Property Council of Australia’s reforms may well be worth considering to alleviate current economic burdens.