Governments take out a lot more through property tax than is given back

Governments take out a lot more through property tax than is given back
Governments take out a lot more through property tax than is given back

The factor overlooked in the “debate” about tax benefits for property buyers is that the amount taken from real estate by government is considerably more than the amount given back.

Real estate is the cash cow of choice for all three levels of government – including through stamp duty, land tax, capital gains tax, rates and infrastructure charges.

The appeal for governments of taxing real estate transactions and ownership is so great that we’ve just seen a government with a multi-billion dollar budget surplus (thanks to revenue from a rising real estate market) introduce a new tax on real estate construction to help fund its attempt to buy the upcoming state election.

The Victoria state government is able to spend big in an election year thanks to real estate and the increased tax take via stamp duty on increased sales levels and land tax helped by rising property values.

Abolishing negative gearing would ultimately cost government more than it saves, while resulting in a dramatic escalation in residential rents, especially in the major cities.

The amount of stamp duty ripped out of each real estate transaction by state governments is so obscene ($27,000 on the average purchase in Sydney) that it’s a wonder citizens aren’t marching in the street – particularly as we were told the introduction of a GST would result in the elimination of stamp duty.

But governments never eliminate existing taxes. They only introduce new ones – even governments like that of Tony Abbott who promised repeatedly before the federal election he would never do so.

Land tax is an example of an impost that was introduced for a specific purpose and then became entrenched as a convenient revenue source. It was introduced in the nineteenth century specifically to break up large land holdings, which were considered a problem at the time, and remains a blight on the property landscape 130 years later.

So we can be sure that the new tax in Victoria – which has started life as a tax on the construction of buildings costing more than $1 million to fund a new bureaucracy, the Metropolitan Planning Authority – will still be around a century from now, but with much broader application that in 2014.

The Property Council of Australia’s executive director in Victoria, Jennifer Cunich, says: “A government projecting multi-billion dollar surpluses shouldn’t be introducing new property taxes.”

Well of course they shouldn’t, but they can’t help themselves. It’s like telling a rodent that’s been raiding your kitchen every night that it can’t eat the chocolate mud cake you left sitting on the bench.

The total tax take from real estate is around $33 billion per year. The cost to the federal budget from negative gearing is around $4 billion a year.

Abolishing negative gearing would ultimately cost government more than it saves, while resulting in a dramatic escalation in residential rents, especially in the major cities. There would only be losers from such a move.

You can contact Terry via  email or on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

Tags: 
Terry Ryder Budget tax Stamp Duty Negative gearing

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