The property market slowdown could punch a $1 billion hole in the Victorian state budget this year, with a leading housing economist revealing a slump in property sales of up to 20 per cent across the state.
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The collapse in sales volumes, with tens of thousands fewer properties changing hands this year, could cost the state’s Treasury up to a $1 billion in stamp duty payments it had been expecting to collect, potentially a bigger hit than that caused by the Global Financial Crisis a decade ago.
The figures prompted a warning from another leading economist that stamp duty-dependent states such as Victoria and NSW will have to rein-in spending as the streams of property taxes dry-up.
Predictions of stamp duty revenue to state government coffers have already been written down once this year, from $7.1 billion to $6.5 billion, partially offset by a projected $300 million boost to land tax receipts.
Treasurer Tim Pallas conceded this week that he “wouldn’t be surprised” to see more write-downs on the back of weak housing market activity but stressed that his government was still on track to return a budget surplus this year.
Domain economist Trent Wiltshire says that housing sales slumped by up to 25 per cent in Melbourne in the past six months of 2018, compared with the previous year, and were down by up to 20 per cent statewide.
Mr Wiltshire said the new year brought no relief to the sector and predicted another poor period for sales and prices as 2019 wears on.
“Auction volume numbers have also been low in February and March 2019 compared to the same time last year,” he said.
“While clearance rates in Melbourne have picked up a bit compared to where they were in late 2018, it's likely we'll see further property price falls, and further declines in sales volumes, in 2019.
“These low sales volumes, combined with lower prices, will mean Victorian state government stamp duty revenue is likely to be lower than forecast.”
A statewide reduction in residential "transaction volumes" of up to 20 per cent could translate to more than $1 billion less stamp duty collected in 2018-2019.
The slowdown comes against a backdrop of overall strength in the Victorian economy, a situation described by the Treasurer this week as perverse.
National accounts figures published on Wednesday showed Victoria’s state final demand grew by 5.2 per cent over the year, the highest growth rate of all the states.
But dwindling stamp duty revenue remains a serious problem and Mr Pallas had issue assurances this week that his government’s big spending election promises and its plans to increase the state’s debt levels to pay for them, remained intact but warned government workers to “temper” their wage expectations.
But Grattan Institute chief executive John Daley warned the days of state government’s funding big-spending programs with tax gains from the property boom were coming to an end.
Mr Daley said states would struggle to impose new taxes to replace dwindling stamp duty revenue and spending would likely be cut instead.
“An old tax is always more popular than a new tax, so it’s going to be a lot more politically difficult to fund new spending programs,” the economist said.
“It will essentially be a time of much tighter budgeting.”
But Mr Daley said governments such as Victoria that had amassed healthy surpluses in the good times were best placed to weather the property tax slump.
“If they can survive that kind of write down and still manage to return a more or less balanced budget, then that’s not a bad outcome,” he said.
A government spokesman said: "Our landmark investment in transport, schools and hospitals is fully costed and fully funded.
"We have record growth and budget surpluses, all backed by our jobs boom, which has put an extra 442,000 people into jobs since 2014.
"While house prices have corrected, strong demand for housing continues, particularly for first homebuyers."
