Bracks' vision still hooked on debt

The Bracks Government presents itself as a modern Labor government -- fiscally responsible, family focused and reforming.

While its intentions and many of its policies might be modern, its taxing policies are decidedly Old Labor.

Since coming to power, the Bracks Government has concentrated the burden of state taxation on home buyers.  In so doing it has forced up household debt, and used that debt to fund recurrent government expenditure.  A result of this has been higher housing costs and reduced home ownership levels.

The problem lies with the Government's increased reliance on stamp duty or transfer fees on residential conveyances.

In 1999-2000 -- the year the Bracks Government came to power -- transfer fees brought in $1.24 billion, representing 13 per cent of total state tax receipts.  This year the tax is expected to raise a massive $2.5 billion or 22 per cent of total tax collection.

Two factors contributed to the rise in the state's dependence on transfer fees.  In 2000-01 the GST deal led to the gradual elimination of a number of state taxes.  As a result the state became more reliant on remaining taxes including transfer fees.  Also starting in 2000, house prices went into the largest upswing in modern history.

This was fuelled in part by government considerably restricting the amount of land on which new house building is permitted.

However, neither the GST nor the housing boom fully explain the Government's increased reliance on transfer fees.

The Bracks Government explicitly chose to place more weight on the tax.

Despite inheriting the most onerous system of transfer duties in the country, the Bracks Government kept the system in place and unaltered.

It has been willing to cut other taxes including land tax, payroll tax and gambling taxes, but not transfer fees.

Moreover, while rising house prices contributed to rising transfer fee receipts, the main driver was bracket creep.

Like income tax, transfer fees are levied at rates that increase as house values reach higher thresholds.  This is why median house prices since 1999 have increased in Melbourne by 109 per cent while transfer fee receipts rose by 179 per cent.

As a result, the fee for median-priced housing in Melbourne is now nearly $17,000, more than 55 per cent higher than the equivalent fee in Queensland.

Problems with transfer fees go far beyond their narrow base and multiple rates.  The duty is a tax on capital transfers which forces most taxpayers into additional borrowing.

As a result the tax has been a major contributor to rising household indebtedness and has imposed an extra $1 billion a year interest burden on Victorian homeowners.

It also violates the fiscal rule -- adopted by the Bracks Government -- of not using debt to finance recurrent spending.

The tax, in effect, forces households to borrow on behalf the Government, with the funds used to fund the day-to-day expenses of government.  Bracks' high transfer fees have also contributed to the high cost of housing and made it harder for families to own their own homes.

This is decidedly Old Labor and is short sighted.

ADVERTISEMENT