Axe the tax, but don’t just add another

Opinion Editorial published in the Herald Sun on 4 March 2023
By Quentin Kilian, CEO Real Estate Institute of Victoria

Last week, the property sector, and no doubt most Victorians active in the property market, welcomed a long overdue announcement of an inquiry into residential stamp duty tax in Victoria.

While the inquiry has the power to set change in motion, there is a risk that the State Government will jump to a quick fix of replacing one tax with another, which will only put more strain on the market.

In its simplest form, stamp duty sees Victorians pay the Government for the privilege of buying a home. It does nothing for participants in property – not investors, nor sellers or renters – and it certainly acts as a deterrent for first homebuyers.

The only plausible explanation for its lingering existence is that governments over the years have struggled to wean off the $12 billion a year that property taxes, bring in revenue – money for jam you might say. Disappointingly, that money has never been reallocated to areas it should, such as investment in more housing, which would improve our current affordability issue – in both home buying and renting.

Property sector leaders fear that unless they’re engaged, along with finance experts, in the development of new tax policy for the state, then policymakers are likely to snap to an easy and ill-informed solution of just replacing stamp duty with ongoing land tax, or something even more onerous.

It happened in the ACT and NSW in 2022, where buyers have the choice of paying land tax or stamp duty, and early signs in those markets are not all that encouraging. In the ACT, the prospect of a large land tax is scaring off investors and significantly reducing supply in the rental market. While the flip from lump sum to longer-term tax relieves immediate pressure of entering the market, it could see households paying more over the long-term depending on how long they choose to stay in their property.

In January alone, a typically quieter month for the property market post-Christmas season, Real Estate Institute of Victoria data estimates that the government would have collected around $164 million in stamp duty.

The property industry in Victoria is a significant contributor to the state’s economy – 20 per cent of Gross State Product ($76 billion) in fact. The sector employs more than 15,000 Victorians.

Given this, the sector deserves a seat at the table when it comes to tax reform discussion. Together, government and industry would produce a better, more strategic long-term approach to how the property market is regulated, supported and taxed.

The REIV stands ready to enter discussion with the Andrews Government. And we’re buoyed by the fact that this parliamentary inquiry might trigger some movement.

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