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The CEO of the Grattan Institute has suggested that the abolition of stamp duty might be needed in order to halt the growing wealth gap resulting from the hot property market.
In her Economic Outlook for Australia address at The Tax Institute’s Financial Services Conference last week, Danielle Wood, the CEO of non-profit public policy group Grattan Institute said that “politically difficult” moves like abolishing stamp duty might be needed in order to ensure property does not become the preserve of the rich.
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Ms Wood commented: “Unfortunately, a lot of things that are politically easy … have negative impacts and don’t really do much to solve the problem. The things that probably make sense and will have a big impact are politically hard.”
She continued by stating that while land tax/stamp duty swaps are “obviously motivated by economic considerations”, removing the high cost of stamp duty (often around $30,000 in NSW), would make it easier for home buyers to get onto the property ladder.
“If you reduce stamp duty, you make the deposit hurdle lower, and that’s the biggest hurdle for young people getting into the market, so it gets a tick on that front,” she said.
Before the huge 1990s boom in house prices, Ms Wood noted that among 25-34-year-olds, home ownership rates were about 60 per cent regardless of how much that household earned.
However, data from 2016 showed that, “home ownership rates fell for all young people”, she said.
While the Grattan Institute CEO noted that levels had dropped only a “little bit” for those on high incomes, “they fell like a stone for low-income young people. Home ownership rates fell from just over 60 per cent to just over 20 per cent”.
“That is a phenomenal change,” she said.
“That’s really quite a significant social change, I would argue, and it will have long-term consequences.
“A lot of our income support, particularly for retirement, is based on the idea that most people will own their own home.
“I think it’s likely that in the future, that will no longer be the case as current generations get to that age,” she continued.
The Grattan Institute is also advocating for changes around capital gains tax and negative gearing.
Ms Wood suggested that the low interest rate environment had ensured that a property market that has been booming for years continues to “run hot”.
“This is the time we find out how much interest rates matter relative to other drivers of supply and demand. The verdict is in: they matter a lot,” she said.
The Grattan Institute CEO’s comments come as pressure mounts on federal and state governments to help make housing more affordable in a hot market.
The Housing Industry Association (HIA) last month called for the abolition of the “inefficient, inequitable and unreliable tax”, highlighting the “inequity” that was caused by stamp duty during COVID.
The industry association for the residential construction and home building industry has released its latest Stamp Duty Watch report for summer 2021, which reviews policies in the states and territories around Australia.
According to the HIA, Australians are currently paying a stamp duty of $21,210 (when utilising a weighted average of the states).
However, the proposal that a property tax would improve housing affordability has also been questioned, with CPA Australia noting that it might not be realised as land values increase and earnings growth fails to pick up.
Find out more about the top property and home buying trends in your local area at the Better Business Summit 2021. Places are limited so make sure you secure your place at the five-state event asap!
[Related: NSW government pushed for details on proposed property tax]
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