THE NSW Greens propose to reinstate the vendor duty introduced by the former Labor government in 2004 but abolished in 2005.
The 2.25per cent tax was payable by the seller of land where the sale value exceeded the purchase value by more than 12per cent. (The family home or farm was exempt).
They say reinstating the duty would raise $645million a year. But this is flawed thinking.
Last time round, the vendor tax stalled the real estate market.
Then the thriving investment property market, driven largely by mums and dads, turned into a ghost town overnight. That extra tax on the already over-taxed property market caused them to flee to other asset classes.
Scroll forward a decade and little has changed. The industry is still heavily taxed and much of the burden falls on owners.
In recent times, we’ve been given the message ‘‘don’t rely on a pension, invest to prepare for retirement’’. And many mums and dads have done just that – buying investment properties to fund their own retirement and, in the process, providing much needed housing stock for renters.
Investors bear a heavy burden – stamp duty, lender’s mortgage insurance, legal fees, interest, maintenance costs, property services costs, and capital gains tax when they sell.
Is it any wonder many see a more liquid, less costly share portfolio as a better bet?
But that doesn’t increase housing supply.
Greens NSW MP John Kaye said, as before, the vendor duty would not apply to the family home or farm, and would help prevent first-home buyers being priced out by another housing bubble.
But that is simplistic, to say the least.
First-home buyers are not being priced out of the market by increasing property prices alone, but by general economic circumstance.
Those first-home buyers who choose to buy new property are supported into ownership through grants and stamp duty relief.
Those who are struggling to get onto the property ladder do so for reasons other than purchase price. The lack of employment, too little deposit, too many debts or not enough income to qualify for a loan are common reasons. Or they are resistant to buying new properties over old, better located ones that don’t attract grants and stamp duty relief.
The Greens assume revenue would be in the order of $645million a year, over four years.
But that is assuming that investors continue to buy property. History shows they do not.
With unemployment now over 6per cent, the Reserve Bank has been confronted with a dilemma: how to stimulate job growth without fuelling a renewed property bubble in Sydney.
The Greens say their package offers a unique response: ensuring that lower interest rates and new spending will stimulate jobs, not speculation.
Stimulating jobs should be the focus of any policy, but it should not involve taxing those who are trying to plan for their retirement.
Jobs growth needs to be aimed at our youth, not at infrastructure schemes that benefit big business, which can then argue a need to employ foreign skilled labour at the expense of our own unemployed.
And while the Reserve Bank may have its hand on the interest rate brake, that is of no use in controlling Sydney’s property market.
What will, though, is the market forces.
Major banks will eventually put a brake on that market by tightening lending criteria, so they are not exposed to too much risk.
Real Estate Institute NSW president Malcolm Gunning has warned that the government should not turn to the property market every time it needs money.
“The data from the last time we had a vendor duty is clear. The NSW government will be significantly worse off, as revenue from total tax collected will reduce because the property market will freeze up as it did last time,” Mr Gunning said.
NSW Labor’s policy to allow first-home buyers to pay stamp duty in instalments is also flawed. Many elect to roll that cost into their home loan. When interest rates rise, which they will, those young homeowners may find the looming stamp duty instalment difficult to pay, along with other regular housing costs such as insurance, rates and maintenance.
Deferring paying a tax that shouldn’t be as high in the first place is not going to pave an easier path for next generation home owners.