Home loans stamp duty under review

After the Henry tax review which will most likely recommend that states be given a share of income tax as stamp duty on housing loans could be abolished.

The Henry review has been inundated with submissions calling for the end of stamp duty. Most likely the way to do this would be for the Commonwealth to give the states the ability to impose their own surcharge on income tax, which would be collected for them by the Australian tax office.

Stamp Duty means poor labour mobility

The Australian has reported that tax economists feel that the tax on moving house, although easy to collect, leads to poor use of the housing stock and poor labour mobility.

Having to pay stamp duty not only discourages elderly people from moving to more appropriate accommodation, it also deters people from moving house to a better jobs market.

Reform of State taxes would succeed only if it goes National

At a conference that was held last week conducted by the Henry tax review both international and Australian tax economists agreed that stamp duty should go and Melbourne University professor John Freebairn referred to the tax as being a piece of garbage.

The review panel was being influenced by state submissions arguing that replacing stamp duty by extending other state taxes, such as payroll tax or land tax would be too difficult to implement nationally.

At a conference last week it was suggested that the reform of state taxes would succeed only with leadership from the national government. Don Challen Tasmanian Treasury secretary stated that if one wanted to achieve a difficult reform, then one needed to make it a national one. He also stated that it would be too hard to win political consensus to extend land or payroll taxes.

He further suggested that it would require eight lots of political commitment and eight lots of legislation and that it was doomed to fail.

He did however feel that the states would be willing to act on stamp duty if the Commonwealth provided an avenue for alternative revenue.

To drop Stamp Duty States need alternative revenue

The OECD suggested two years ago that the states be given a cut of income tax and that the states should drop stamp duty.

Canada's Richard Bird one of the world's leading experts on federal taxes stated that the states were heading for a financial crisis because they did not have sufficient tax base to support their expanding health and education costs, which were rising much faster than the consumer price index.

The main problem with stamp duty for the states is that it is vulnerable to the state of property markets.

Stamp duty usually raises about $14 billion a year for the states, but the recent state budgets showed big falls of more than $1 billion each in NSW and Queensland, in 2008-09 example.

Professor Bird maintained that it was feasible to permit states to impose a surcharge on the federal personal income tax base in Australia. He stated that ideally, Australia would follow the Scandinavian practice of allowing states to have a flat tax surcharge on income, rather than mirroring the Commonwealth's progressive taxation.

The states would be allowed to set their own level, making states more responsible for their own finances.

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Published on June 6-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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