The Napthine government has just delivered the road and rail projects that were held up by weak revenues after the Victorian Treasury dramatically lifted the state’s projected surplus, largely due to very high Stamp Duty revenues on booming property prices and transaction volumes.
Treasury and Finance data in the budget update shows expected revenue from land transfer duty (Stamp Duty) in the current year rising from $3459 million to $3908 million and $4143 million, not $3708 million next year– a delightful windfall that allowed the Napthine government to announce a $24 billion building blitz to shrink the city and serve a fast growing population.
Windfall? Maybe so in political terms. But it imposes a very heavy burden on property buyers – over and above the money diverted to Treasury.
In The Excess Burden of Australian Taxes commissioned by the Australian Treasury, KPMG Econtech says conveyancing Stamp Duties:
- Drive a wedge between producer and consumer prices of property
- Cause some people to switch to renting rather than owning their property
- Cause people to adjust their property consumption less frequently
KPMG’s estimates the Median Excess Burden at 34 cents in the dollar and the Average Excess Burden at 31 cents. So Victoria’s $3.4 billion take cost citizens $4.5 billion. The difference is an out-and-out loss – hard earned dollars destroyed forever.
It gets worse. KPMG acknowledges its computer model only captures the cost of the first distortion above and underestimates the total cost. It does not put a price on the very real costs imposed on those obliged to rent or trapped in unsuitable housing by the SD impost.
The study says business passes its SD costs on and its incidence falls on labour incomes, while residential purchases flow straight to increased prices. In other words, workers pay – twice.
The sins of this very bad tax don’t end there. The revenue stream is utterly unpredictable, dramatically rising and falling with transaction volumes. Treasury forecasts steady SD revenue growth of 6 per cent a year for the next three years, but no year in the last fifteen was remotely like that. Any result from -25 to +45 per cent is possible.
Treasurer O’Brien is writing giant multi-year construction contracts on this wild revenue stream.
Some government revenues and expenditures operate with virtue as automatic stabilizers, moderating and steadying the overall economy. SD cannot make this claim. It just flails around injuring people.
There is a better revenue base available to Victoria today: State Land Tax. Just remove its exemptions, thresholds and wheezes and consign Stamp Duty to the scrapheap. That SLT has deadweight losses of nil, so no wasted lives or people trapped in and out of housing.
And hey, guess what? These massive road and rail projects are instantly self-funding.