The plan that could wipe $40,000 off the cost of a house

Housing Perth 070808 AFR pic by Erin Jonasson. Housing affordability, first home buyers, interest rate rise and the mortgage stress on middle income families, property, home, house, residential realestate, property for sale, generic hold for files, AFR first use please. SPECIALX 00068604FOR SALEHOME LOAN Photo: Erin JonassonThe Parliamentary Budget Office has costed a proposal that would kill stamp duty and replace it with land tax, saving home buyers up to $40,000 in Sydney and $55,000 in Melbourne, while delivering billions of dollars to fund schools and hospitals.

The costing will put land tax back up for debate when Parliament returns next week as the government looks to mark its authority on the housing affordability crisis less than two months out from the federal budget.

Both the NSW and Victorian governments have thrown their weight behind broader stamp duty tax reform and Treasurer Scott Morrison has indicated his support for a transition to taxing land.

“When you talk about tax reform, this is far and away the biggest prize on offer,” said John Daley, the chief executive of independent think tank the Grattan Institute.

Under current regulations, home buyers pay tens of thousands of dollars in stamp duty, creating an additional hurdle for people looking to enter the market amid soaring property prices in Sydney and Melbourne.

Removing stamp duty and implementing an annual land tax on all newly purchased homes would help level the playing field and generate billions of dollars in annual returns to the NSW and Victorian budgets, while also relieving federal government spending over a 15-year-period.

Under the policy submitted by the Greens and backed by the Grattan Institute and the Council of the Ageing, home buyers would no longer stump up to $40,000 in stamp duty when purchasing a property worth $1 million in Sydney. In Melbourne, a home buyer would save $55,000 stamp duty on a property of the same value.

Research from the Grattan Institute shows an annual tax of $1 per every $1000 of a home’s value would cost the median Sydney household $845 a year in tax and the median Melbourne home $623 a year.

To offset the cost of losing lucrative stamp duty payments, the Commonwealth would have to loan money to the states. The loans would peak in 2020 when the hit to the budget bottom line would grow to $800 million. Rising land tax revenues would enable the states to pay back the loan by 2030.

The Parliamentary Budget Office estimates that in the next four years alone the tax would generate $2.3 billion in revenue for the states, but warned the overall costings were of low reliability due to the variations in number of properties sold across each year.

Greens Leader Richard Di Natale said the prospect of property ownership had turned into a nightmare for many young people.

“Together with Capital Gains and negative gearing reforms, swapping stamp duty for a broad-based land tax would fix the broken system and make it easier for young people to live the n dream,” he said.

In December, Treasurer Scott Morrison pushed the states to transition to a land tax at the state and federal treasurers meeting.

He praised comments from NSW Treasurer Dominic Perrottet that reforms would free up housing stock for young buyers by encouraging them to move more.

In NSW the government provides concessions on stamp duty for new properties under $650,000 but with a median house price of more than $1 million few are sold below that price.

Last week Victoria abolished stamp duty for first home buyers purchasing a property valued below $600,000.

On Friday, Mr Perrottet said he welcomed dialogue with the Commonwealth “on sensible ways to reduce the tax burden and improve the efficiency of the tax system”.

A spokesman for Mr Morrison said “various ideas were always flagged on big issues,” but “the government won’t be drawn on budget speculation.”

Mr Daley urged the states and Commonwealth to work together on the basis that the long term benefits would outweigh the short term political pain.

“It would be very difficult to find any policy analyst or economist who doesn’t think it’s a good idea,” he said.

A tax on land is considered among the most efficient of all taxes because it is hard to avoid, targets the rich more than the poor, and unlike upfront taxes, does not discourage people from buying things like a GST does, and therefore provides both an economic and budgetary boost.

“Stamp duties are inefficient because they lead to people living in a house much smaller or larger than they need to because they don’t want to pay more stamp duty,” said Mr Daley.

Council of the Ageing chief executive Ian Yates said the policy would help older ns but would need to include provisions for rates to be deferred so new taxes did not hit pensioners in the short term.

“Stamp duty is a hurdle for older people to relocate or to ‘right size’ because they want something that is modern and in the same area and that is a financial challenge,” he said. cut

He urged Canberra to unite behind the change.

“When there is unanimity on the benefits of the transition it’s time we collectively applied our mind to how we get there,” he said.

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