In the second leaders debate of the NSW election campaign televised tonight, ALP opposition leader Luke Foley proposed buyers be allowed to defer Stamp Duty, allegedly to ‘help improve housing affordability’.
This idea must be condemned. Either Mr Foley is taking NSW voters for fools or is economically illiterate.
Stamp Duty is used by government because the person who writes the cheque is not the one who pays the tax. They quite like this confusion of responsibility and accountability.
In a property transaction, the statutory incidence of SD falls on the buyer – the law says they must pay it. However, the economic incidence falls on the vendor – it comes straight out of their pocket.
The sale of a house worth $550k incurs a SD liability of around $20k. How much would the house sell for in the same market without SD? If you guessed $570, you would be correct.
If SD payment is to be made in instalments or deferred, the contingent liability becomes attached to the asset. Settlement after sale gives the vendor a clean break, renouncing all and any interest in the asset and clearing all future liabilities. With this single gesture, the economic incidence for SD just shifted back to the buyer.
The housing market will immediately re-price houses as the deferred SD, not being required at settlement, can be disregarded.
If Luke Foley’s proposal is adopted, NSW property prices will be abruptly lifted by about 5.5 per cent, the burden placed squarely on buyers and housing affordability worsened.
Sydney’s housing market is white-hot. Price records are being broken and broken again as an army of ‘investors’ scramble to become rentiers in the worst place and the worst time in human history to make the leap. The trend in the investor share of Sydney mortgages is parabolic. That market doesn’t need fresh stimulus.
Stamp Duty is a very bad tax. It traps people in and out of housing. It falls most heavily on those who change where they live. Those forced to sell by hardship – divorce, unemployment, financial pressures – have the harm compounded by SD.
If Mr Foley genuinely wanted to help NSW citizens through tax reform, he would abolish SD and fund this by removing the principal place of residence exemption from State Land Tax. His proposal tonight is merely another gift to vendors.