The Housing Industry Association – the builder’s’ lobby group – today called for changes to allegedly improve home affordability in a media release The Real Cost of Stamp Duty, saying it added three per cent to the cost of buying property. HIA Senior Economist Shane Garrett calculated that if Stamp Duty was paid instead into an individuals’ superannuation, a West Australian would have an extra $234,000 at retirement and a Victorian $320,000.

This is utter foolishness. Removing Stamp Duty would simply and immediately raise the selling price of land by the full extent of the tax displaced, to the sole benefit of vendors.

Perhaps Mr Garrett is instead admiring the phenomenon of compounding returns and the giant opportunity cost of buying residential real estate.

Prosper Australia welcomes discussion on tax reform and actively supports the removal of conveyancing Stamp Duty. This is a particularly nasty tax that traps citizens in and out of housing. It makes moving for work transfers or family reasons expensive and directly injures those marginally attached to home ownership.

Interestingly, while the statutory incidence (who the law says must pay) of Stamp Duty falls on buyers, the economic incidence (who pays in practice) usually falls on vendors. This is why the HIA wants SD removed, probably to be replaced by broadening the GST to include food and at a higher rate. GST is a vile and regressive tax that should be condemned.

If taxpayers are to endure the upset of tax reform, then the change should be to best practice – the tax bases economists have identified as causing the least harm.  The HIA seems to want all property taxes removed to further inflate the staggering cost of land. Doing so would not help builders one bit.

Right next to Stamp Duty sits the ideal base: State Land Tax. A uniform SLT has deadweight losses and an average excess burden of zero. It causes no harm – a rare and special virtue among taxes, as KPMG Econtech clearly identifies:

The HIA should embrace a shift of property taxes from SD to SLT, as REIWA President David Airey has.

Builders, who buy land and sell homes, would bear only the holding cost for the time it takes to construct the house. The most efficient builders pay least. Removing the transaction charge would also make buy-renovate-sell more profitable and enhance our housing stock.

The risk of hurt through double-taxation in the transition to SLT could be easily resolved by crediting every property owner who has paid SD with a hypothetical SLT from their date of purchase.

An impartial backgrounder on Stamp Duty and Land Tax by the Australian Housing and Urban Research Institute can be found here and here.

* An earlier version of this piece misunderstood the thrust of the HIA’s arguments.  The real intent is no better.