AS DEBATE rages over whether negative gearing and capital gains tax is really to blame for high house prices, there is one area that Treasury has acknowledged is an issue – stamp duty.

In its submission to the parliamentary inquiry into home ownership, Treasury urged state governments to reconsider levying stamp duty, which it labelled ‘one of the most distortive taxes in Australia’s economy’.

Treasury said state-based stamp duties drove a ‘wedge’ between buyers and sellers, preventing ‘mutually beneficial transactions taking place’.

‘Reducing stamp duties would improve land use, by facilitating households and business to move to land which best suits their circumstances,’ the submission reads.

As the average price of homes in Sydney has increased dramatically, buyers are also paying much higher levels of transfer duty due to bracket creep.

The Law Society of NSW identified this as an area for reform in the submission it provided.

The committee pointed out that stamp duty rates in NSW had largely remained unchanged for 29 years, despite the average home price in Sydney skyrocketing to about $900,000.

When stamp duty was introduced, average home buyers were expected to pay a 3.5 per cent transfer duty as this was the rate to be paid on properties worth less than $300,000.

Nowadays the average home price in Sydney is about $900,000 and people are paying stamp duty rates of about 4.5 or 5.5 per cent.

The committee said it did not think there was ever any ‘legislative intention’ for the average homebuyer to pay such high rates of stamp duty, and it believes that the 3.5 per cent rates of NSW transfer duty should be changed to apply to homes up to at least $1 million.

It pointed to a statement that was made in Parliament when the stamp duty legislation was introduced that ‘the increased rates for conveyances only affect properties worth more than $300,000 and thus will not affect the average home purchaser’.

The committee also believes that the high rate of stamp duty has added to higher house prices because buyers want to recover the cost of the transfer duty when they sell. The levy also discourages people from buying and selling.

While the committee noted that in the last financial year, NSW’s Budget raked in $1 billion more than expected because of extra stamp duty collected from the high number of homes being bought and sold, it did not believe that lowering stamp duty would necessarily mean this revenue had to take a hit, as it might encourage more people to buy and sell.

The committee believes other states and territories should also consider adjusting their rates.

‘In taking these steps, state and territory governments would not only be assisting average homebuyers but would be incentivising turnover, thereby maintaining transfer duty revenue collections,’ it wrote.

Posted by News Limited Network on 17th July, 2015