We are taxing the family home at the wrong time. We hit people with a large amount of stamp duty when they buy. The result is that some first-home buyers buy cheaper places (and have to upgrade later) and others get shut out altogether. High duties encourage existing owners to extend rather than move and they deter empty nesters from moving to smaller places. They also discourage people from moving to get a job or a better job. That is the nature of tax - people act to avoid it where possible. Tax spirits and they move to wine. Tax capital gains at a lower rate than income and they will rejig their affairs to convert income to capital gains. Tax moving house and they won't move.
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If you must have stamp duty, wouldn't it make more sense to tax the family home on sale, rather than on purchase? And there are all sorts of other possibilities worth looking at in the face of this week's admission by Chief Minister Katy Gallagher that the heavy reliance on property tax is making things worse for affordability and for renters. And the other states and territories are in the same boat. As well, they could do something about an insurance double-dip at time of purchase (but more of that anon).
Former ACT treasurer Ted Quinlan will bring down his report into the ACT tax system on Monday. As treasurer, Quinlan increased stamp duty on houses over the then median price of $320,000. But there has been virtually no indexation since. Indeed, no state or territory has done any significant indexation of the house values to which the various rates of stamp duty apply for 20 years. The result is hideous amounts of stamp duty being paid by people on modest incomes for average houses.
Many buyers must seriously consider whether it is better to do a $50,000 extension rather than move to a bigger house and pay the ACT government that amount in stamp duty. It would be much better to spread the tax burden so people can move to more suitable housing, resulting in more efficient use of the housing resource. It is bad for governments, too. Come a housing slump, they cop a revenue slump.
The states and territories should get smart. They should give all home-buyers the option of paying the equivalent of stamp duty over, say, 20 years, paying the same rate of interest that the government itself pays (after all, the debt is quite secure). If the house is sold before then, the balance must be paid immediately.
Gradually, you would move from a chunky stamp duty on purchase to a de-facto annual property tax or a stamp duty on sale. Eventually, you could replace the system with a simple tax on all property - whether principal residence or not.
The states and territories should also ponder this question: what is stopping them imposing a capital-gains tax on the sale of the family home, seeing as the Feds have left the field vacant? Once one did it, the others would follow. Even easier, impose a death duty (which includes the family home but excludes spousal inheritance). That is an excellent tax because it would be imposed at a time when it is most affordable.
At present, the exemption of the family home from capital gains tax is worth about $35.5 billion a year, according to the Treasury. It is the single biggest tax break in the federal budget. The failure to tax capital gains on the principal residence is unfair on renters, who typically comprise the least well-off.
But don't expect any change in Tuesday's budget. Once the freebie is given out, it is difficult to take back. Voters demand the impossible: impeccable government services but not enough tax to support them.
Ah, yes, now to the insurance double-dip. When you buy a house, lawyers advise you to take out insurance the moment you sign the contract - just in case the place burns down and you are compelled to complete the contract because it is a contract for the sale of land, and whatever is on it is irrelevant. Lawyers also advise sellers to keep their insurance until final settlement, usually 30 days later - just in case the place burns down and the buyer refuses to go ahead.
About 500,000 dwellings are sold in Australia each year. At $600 a year for building insurance, the double insurance is $50 for the 30 days of double insurance. That is about $25 million a year. It would be simple to legislate this away. State and territory governments have meddled enough in the conveyancing process with costly and unnecessary EER reports and the like. They should do something useful and legislate so only one insurance policy is needed for the period between signing contracts and final settlement.
■ Let me share a little road rage with you. The NRMA did some research showing ACT drivers are active road-ragers. Maybe our roads are too good and the traffic too light so minor inconveniences agitate us more than they do motorists elsewhere.
Great research, but the NRMA's proposed response is infuriating. It wants to put up a lot of flashing electronic signs urging motorists to cool it. The signs will be ignored by the few per cent of drivers who cause 95 per cent of the problems, and will intensely annoy the 95 per cent of drivers who do not need signs to tell them to cool it.
We are blessed in the ACT with no commercial billboarding. Must we pollute the bush capital with unnecessary non-commercial signage?
crispinhull.com.au
