Grey-haired Australians can sit on their porches and yell at lawn-trespassers to their heart’s content. But they need to stop telling us to ‘get out of their housing market’. Dominic Perrottet’s plan to abolish stamp duty in New South Wales and replace it with land tax finally lets young people share in the Australian dream. For far too long too many young Australians haven’t been able to afford a one-bedroom hole in the wall, let alone a lawn.
The COVID lockdown has sent youth unemployment skyrocketing, and has suspended career plans. Many Australians approaching retirement expect the young to support them financially and to cheerfully pay the interest on the national debt. All of this, coupled with an unaffordable housing market which drifts further out of reach.
Young people will benefit most from the NSW tax reform, and it’s about time we are the winners. By dumping stamp duty, NSW is tearing down a huge barrier to entry into the housing market. If someone were buying a Sydney home at its median price, they would have to fork out almost $50,000, on top of a $230,000 deposit. That’s almost $300,000 upfront.
When young Aussies point out the impenetrability of the housing market, people quickly accuse them of eating “too much avocado on toast”. It is a tone-deaf response to what is actually a deep problem of intergenerational inequity.
We don’t need rose coloured glasses to look back, the housing market really was better back in the day. In the mid-1970s, when the boomers were young, the median house price in Sydney was $27,400. This was about 3-4 times the average annual salary. Today, the median Sydney home costs $1,154,406, and is 13.5 times average full-time salary. That’s a lot of smashed avo.
This isn’t about waging generational warfare, but simply about achieving equality of opportunity. Abolishing stamp duty makes the aspiration to one day own your own home slightly more attainable.
Instead of being applauded for his vision, Perrottet’s tax reform is protested in mainstream media, mainly due to the proposed move to a broad-based land tax. Perhaps those authors should disclose what price they bought their home for.
The move to land tax will see Sydneysiders paying an average of $2391 per year.
Opponents of the land tax complain homeowners will forever need to pay the tax never truly owning their land, while the stamp duty is just ‘one and done’. But counting only the initial price tag attached to stamp duty fails to take into account its full cost which homeowners pay for years to come.
Every tax has both direct costs and opportunity costs. Opportunity costs are forgone benefits as a result of some action, in this case paying the stamp duty.
Homebuyers must save for additional years (paying rent as they save) to pay the stamp duty. Homebuyers would put all their saved money toward a larger deposit on their home; instead, they must put money toward the stamp duty. They must borrow more on their home paying interest for the entirety of their mortgage agreement.
Counting both the cost of stamp duty and the extra interest homeowners must pay as a result of stamp duty (the opportunity cost), it would take between 28 and 30 years for the average homeowner to pay as much in land tax and they currently pay in stamp duty.
Land tax is also a far more consistent and reliable form of revenue for the state government. Stamp duty is highly volatile due to fluctuating property prices. Conversely, a predictable land tax enables the government to budget more effectively. It is a change endorsed by the head of the RBA Philip Lowe as well as the Thodey Review.
But a land tax does not just benefit the government. The change in the tax burden means there is greater incentive to downsize and generally more flexibility in the market. Stamp duty will no longer factor in as an impediment to downsizing, freeing up larger homes for families. It is important to note that these tax reforms do not affect existing homeowners who have already paid stamp duty.
The abolition of stamp duty is so much more than tax reform. It represents breaking down the barriers for young people to achieve the Australian dream. It is a silver lining of this morbid COVID period. It’s time to stamp out stamp duty.
Julia Kokic is a policy researcher at the Australian Taxpayers’ Alliance.
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