Cut the Tax on Properties

It is time for relief for Victorian taxpayers, and the place to start is a reduction in conveyancing fees.

The Bracks Government has been the beneficiary of an enormous tax windfall.  Over the last four years, tax receipts have grown 27 per cent more than expected by the government.

Instead of giving the windfall back to taxpayers or reducing its taxing effort, the Government has spent the lot, primarily on more and better-paid public servants.

It is now times to redress the tax imbalance.

Aside from fees and fines, now 119 per cent higher than predicted four years ago, the most egregious increases have been in property taxes;  specifically conveyancing duty.

The Victorian Government levies seven different taxes on property which are expected to raise a total of $3.5 billion in 2003-04.  This will represent 35 per cent of the State's total tax receipt -- a level greater than in any other State or Territory.

The largest property tax, by a substantial margin, is the conveyancing duty which is levied on all property transactions, including the sale of private homes.  Receipts from conveyancing duty are now expected to increase to $2.3 billion in 2003-04 or $400 million above budget.  Moreover, over the last four years, the conveyancing duty receipts have more than doubled, generating $1.2 billion in windfall revenue.

Clearly the boom in house prices and in sales has contributed to the rapid growth in conveyancing receipts.  However, these are not the only reasons.  As detailed by the Productivity Commission in their Discussion Paper on First Home Ownership, Victoria has imposes the most onerous set of conveyancing duties in the country.  Even after adjusting for differences in average house prices, Victoria's effective rate of duty is 30 per cent above the average of all States.  Moreover, its duty rate is higher for most classes of buyers, including First Home Buyers.

The reasons are clear.  Victoria levies high duty rates which kick in at low property values, and its highest duty rate is reached at relatively low values.

Conveyancing and other stamp duties have a number of pernicious effects which make them particularly bad taxes.  First, they inhibit necessary capital adjustments.  For example, they inhibit people from moving home in search of work.  Or, as is currently the case with Loy Yang A, inhibit the necessary sale of assets.  Second, they are imposed multiple times on the same asset.  For example, duties are imposed on the same piece of land as it passes from developer, to builder and to the final purchaser, and are imposed on the sale of the property, as well as on its mortgage and its insurance policy.  Third, receipts tend to be very lumpy and induce governments to commit to unsustainable levels of expenditure.  And there is little doubt that when the property bubble deflates, the Bracks Government's fiscal position will be exposed.

The solution lies in reducing stamp duties across the board.

The next question is:  how to fill the gap in income?  I suggest that the most equitable way would be to cut back on the waste that has been built up over the last four years of easy money.

ADVERTISEMENT