The return of The Crown on Netflix has brought us an excellent performance of the Iron Lady according to The Spectator columnist and author of Mrs Thatcher’s authorised biography, Charles Moore. Let’s hope it’s a timely reminder for New South Wales Treasurer Dominic Perrottet on the perils of poll taxes.
Mrs Thatcher was at the peak of her popularity when she was re-elected in 1987, like the NSW government, for a third term, and unlike them it was a landslide. Yet within a year of its introduction the poll tax was so unpopular that she resigned.
It’s an object lesson in what not to do. Her successor increased the Value Added Tax (Britain’s equivalent of the GST) to reduce the hated tax and when he replaced it within another that resembled the original rates system, the VAT was not cut.
In sum, Britain lost a great leader at the very moment when her strong opposition to an emerging European super-state was needed and the country ended up with higher taxes.
Mr Perrottet has put forward a proposal to allow home buyers to choose between paying onerous stamp duty upfront when they buy their next home or paying a smaller annual property tax in perpetuity. He has sweetened the deal by offering first home buyers grants of up to $25,000 to help cover stamp duty which will push up the price of houses. Other property buyers will also have the choice of replacing stamp duty with additional land tax, with different rates for owner-occupiers, investors and commercial property.
Superficially this may seem like a good deal. We can all agree that stamp duty is an inefficient tax that penalises people buying their home, upsizing it as their family grows, moving to secure the jobs and schools of their choice, downsizing as their nests empty and investing in the property market. That doesn’t mean it should be replaced with a land tax on the family home.
Twenty years ago, when the Howard government introduced the GST, it gifted the states and territories the entire revenue on the understanding that they would ‘review the need for retention’ of stamp duties. But while they have removed smaller duties, they refused, with the exception of the ACT, to remove stamp duty – a cash cow, that has fattened rapidly with rising property prices.
Unfortunately, Mr Perrottet’s proposal to cut stamp duty while imposing a land tax on homeowners is a sleight of hand that will almost certainly leave them worse off in the long run. Home owners will pay for the privilege of living in their home long after their notional stamp duty debt has been paid off. When they retire and they are living on fixed-income annuities, savings and pensions, they will still be paying; and although their incomes will decline, the value of their home and consequently their tax burden will increase. Property investors in NSW already know how onerous land taxes are; home owners should beware of finding themselves in the same boat. This is a fortiori the case since the NSW budget predicts a record deficit of $36.5 billion, nearly 6 per cent of GSP in the next financial year and debt lifts to a record $191 billion in 2023/24, 27 per cent of GSP and an increase of $78 billion since the half year review. How will this be paid for? An increase in land taxes? That’s what the ACT has done.
Mr Perrottet is to be commended for freezing the salaries of his mandarins and reining in the size of the public sector but the total public wage bill is still forecast to average more the 3 per cent above the profile, or $47 billion in 2023/24. He needs to focus on finding savings that he can hand back to the people of NSW; not allow his more spendthrift colleagues to indulge their inner-Keynes. Ditching the ridiculous ‘Out and About’ voucher announced in this week’s NSW budget of $100 to spend on food and entertainment, which will cost $500 million, would be a good if small place to start.
Mr Perrottet should aspire to honour the spirit of the intergovernmental agreement accompanying the GST, as articulated by Mr Costello, which was to abolish stamp duty altogether. If he can’t do that he should aim to cut it and offer home buyers the opportunity to pay the duty over a number of years, extinguishing the debt. What he should not do is lure them, through prestidigitation, into a stealth tax for life, on the family home, the most important way in which Australians save for their retirement.
That would mean living up to the commitment of Liberals to smaller government, not honouring it in the breach.
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