Victoria and NSW are considering scrapping stamp duty in favour of land taxes.
The COVID-19 pandemic has presented many opportunities to change the status quo, and one of the biggest reforms governments are looking at is scrapping stamp duty in favour of a land tax.
Stamp duty is a much-reviled tax on property purchases, which most people agree is horribly inefficient and penalises new home buyers unnecessarily. Unfortunately, state governments rely on this revenue to generate revenue and it is incredibly hard to change the revenue base.
However, the latest crisis has resulted in both the NSW and Victorian governments seriously looking at scrapping the ineffective tax and replacing it with a land tax levied annually on all home owners.
If this passes, what will it mean for retirees?
Firstly, the good news. Stamp duty is one of the leading barriers to older Australians downsizing in retirement.
What is the point of selling the family home only to lose a significant portion of the household capital to pay for the stamp duty on a smaller residence?
With stamp duty removed we can expect it to be much more rewarding for older Australians to sell their larger properties and downsize into something more affordable, and reap the reward from the capital invested in their home.
It is also likely that new homebuyers, who will be interested in buying these properties, will still be willing to bid up to the maximum amount they are able to afford, which means house prices may increase with no stamp duty to be paid on the purchase, which could mean more money in the pockets of those looking to downsize.
For those retirees who do not want to downsize, or have already downsized, the prospects are not as bright.
A land tax will be a new annual tax paid by all homeowners. This is an expense that those who have already retired would not have budgeted for and will have to pay. And it won’t be cheap; with many predictions suggesting the land tax may be more expensive than current council rates.
Making the proposed land tax even more unfair is the fact that current homeowners have already paid stamp duty on their property, so will in effect be paying the price twice, compared to new homebuyers.
The people hardest hit by the changes will be those who are asset rich but income poor, and most retirees fit squarely into that category.
The ACT is already in the process of replacing stamp duty with a land tax, but it is making the change gradually to limit the damage done. The ACT reforms are taking 20 years to be implemented and stamp duty won’t be completely abolished until 2032.
As yet there is not enough detail on how the Victorian and NSW state governments are planning to phase in these changes, but it is hoped that the retirees will be looked after by ‘grandfathering’ any changes so that those who already own a house stay under the old rules until they buy a new house.
There are also suggestions of allowing people to opt in or out of the land tax system, giving people the option of paying a large up-front stamp duty bill or allowing them to pay a few thousand dollars each year based on the value of the land.
What do you think of the proposals to scrap stamp duty and introduce a land tax? Do you think it will hurt retirees?
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