I am always keen to pick the brains of brainy Cats and so I thought I would put down a few musings on the above topic. There is a view that lowering or removing stamp duty on the transfer of houses would increase labour mobility and enhance efficiency – indeed, according to the Grattan Institute, it would be a game-changer.
I recall seeing a table some years ago about relative land transfer taxes around the world – I think it was in The Economist – and that Australia was actually not very high compared with some European countries. Any clues on these data?
I also came across this study of Andrew Leigh, when he was Professor Andrew Leigh as opposed to Andrew Leigh MP:
Land transfer taxes are a substantial portion of the cost of moving house in many
developed countries. However, little is known about the effect of such taxes on the
housing market. Since stamp duties are endogenous with respect to the house price, I
create an instrumental variable that is the stamp duty on a property, given that
postcode’s starting house price and the national house price trend. In a specification
with postcode and year fixed effects, this instrument effectively captures policy
changes and nonlinearities in the stamp duty schedule. I find that the impact of an
increase in the tax rate is to lower house prices, with the magnitude of the effect rising
slightly over the medium run. I also observe impacts of stamp duty on housing
turnover. A 10 percent increase in stamp duty lowers turnover by 1-2 percent in the
first year, and by 4-5 percent if sustained over a 3 year period.
Here are some of my initial thoughts:
- Stamp duty revenue has a high beta but state governments apply the revenue for purposes with a low beta – this is not a good fit;
- Having said that, we do not want to remove a source of state government revenue without replacing it with another source of state government revenue – that is, we do not want to undermine further the states’ fiscal autonomy, to the extent they have much;
- Replacing stamp duty with annual property related taxes – eg. a surcharge on council rates – would have its own problems. Using unimproved property valuations would be the most efficient but not all states use this as the base;
- Is a poll tax the way to go? (to lose government, perhaps);
- What happens to those who have recently purchased a house and paid the stamp duty (note issue of incidence in terms of who really bears the cost)? The stamp duty is capitalised into the price of the property and they will then be ‘invited’ to pay the new property tax. In other words, TRANSITION seems a big issue if we were considering this move.
- Should taxes on property be removed altogether? But given the exemption of capital gains tax on owner occupied dwellings, would this mean that property is too lightly taxed? (Yes, I know, I know, we want a world of low taxes but just bear with me. And I guess that stamp duty is almost a form of wealth tax.
So any thoughts, information and brick bats very welcome.