Reductions to stamp duty must be part of the GST agenda: Peter Chittenden

Well it has only taken just under 14 days for GST to be back on the political and taxation agenda. As I noted in my post election comments, over the next few years the federal government’s review of the tax system is set to possibly be one of the biggest impacts on the housing industry and real estate market.

It’s an important issue because any variation to the structure of the GST could have a negative impact on affordability but any extra funds might also help state governments deliver better infrastructure.

When it comes to the woes and opportunities in the housing markets these two topics are frequently tied up in the same argument. Better infrastructure will assist the market and help create more supply but a high GST may well add to costs if we were to move from 10% to 12.5% or even to 15% as is the case in New Zealand.

Any reforms must finally address stamp duty. While I have already noted that the new government in Canberra has promised a big picture tax review, as far as the housing market is concerned this is an essential undertaking. Stamp duty cannot be quarantined or offset because of this or that occasional government grant or incentive scheme, what we need is real reform.

Given the need for more revenue the GST was always going to be back under the spotlight. But as I and others have noted time and time again, any review of the GST must include a review of property related taxes and in particular stamp duty. Our professional industry bodies need to ensure our case is understood and answered in Canberra.

Here again I have previously pointed out that local and state governments still gain 45% of their revenue from property related taxes. Transaction taxes alone account for 14% of that revenue, which are according to the OECD among the highest rates in the world. These taxes impact almost every part of the housing market, they can and do present a hurdle to some first time buyers, but they also hurt people looking to trade an established home.

In any GST review this is one of many essential factors to keep in mind because as Dr Tim Williams CEO of the Committee for Sydney noted in his report ‘Homes for All’ that a fifth of the population owns 50% of all homes. Many of these established owners are reluctant to move because of the burden of stamp duty and its possible impact on retirement savings. And it is also claimed that in some areas the burden of stamp duty may, in spite of changes to some planning regulations, also unintentionally prevent re-development and so limit the supply of new homes.

Additional costs by way of a higher GST, while they may be at least three or four years away must also be introduced as a part of meaningful reforms of other taxes, and in respect of the housing market, high on that list is the removal of stamp duty. One very clear reason for this is the possibility that in three or four years time today’s historically low interest rates may well have disappeared.

The burden of higher interest rates and a higher GST, without a commensurate reduction in the rate of stamp duty, or even better its complete removal could have the potential of making home affordability even worse than it is today even with low interest rates. For the property development industry and state governments this is a long avoided debate that can no longer be put off!