Stamping it out

The best use of money is when a person spends their own money for their own benefit, followed by a person spending their own money on someone else. The worst spender of money is when someone spends someone else’s money on others, which is what happens when Government spends taxpayers’ money. So, this week’s Economic/Productivity roundtable is way off the mark when it talks about more taxes rather than reduced spending. Taxes can be used to drive behaviour, but there are some truly destructive taxes that should be abolished. What’s the first tax we should stamp out?

Did you know that there are over 300 tariffs that raise only a combined $15 million in tax? Cartridges of grease fall into that category, so we know firsthand that it costs more for us to calculate how much is due than we end up paying in tax. Not just that, the administration cost will be even more at the Government end (the system is in fact so stupid that we forward estimate a year and pay in advance, then Government gives a rebate once they know the real quantity). This is low hanging fruit, and an example of regulation that should simply be removed as it serves no benefit in any way.

But the most terrible tax must surely be Stamp Duty. (well, it may get gazumped by taxing unrealised capital gains…, but I am referring to existing taxes) It was meant to be abolished by the States when GST came in, but all States are too punch drunk on the revenue they collect from it. Using Qld as an example, 29.5% of the total $92 billion in revenue per year is State Taxation. The biggest portion of that at 29.4% is Payroll tax (another counterproductive tax – why make it a disincentive to employ people or pay them more?). Second biggest is Transfer Duty (26.7%) with Other Duties adding a further 10.1%. So the dead hand of Stamp Duty is close to $10 billion per year in Qld alone.

But it is the flow on effect from this tax that is the most damaging. An average house in Brisbane now costs about $1,000,000 to buy, and requires forking out $30,850 for a home owner or $38,025 for an investor. Want something closer to the city and spend $1,500,000 and you’re coughing up for a wasteful $59,600 for a home to move to. For most people, this just increased their loan, so it forces people to borrow money to pay taxes often when they can least afford it.

Most readers have probably been in this conundrum too: you really want or need to move, yet the Stamp Duty (plus agents’ commissions, legal costs, and moving costs) means you are literally pouring tens or hundreds of thousands of dollars down the drain. So instead, you stay put, perhaps making an improvement to the house. This is one reason why we end up with houses with 1 or 2 people in them when the kids have flown the coup.

So when we talk about a housing crisis, think of it like this. In the 1980’s, there was an average of 2.9 people per household. Today, that figure is 2.5. The average size of a house in 1980 was 162m2, whereas today it is about 50% bigger at 230-270m2. So as our standard of living has improved, so have the expectations, although in the past 2-3 years house sizes have moderated very slightly (no doubt due to smaller block sizes as well as the exponential cost increase of approvals and construction costs).

The Qld Government has decided to give Stamp Duty concessions, but only to first home buyers for NEW houses. Why?!? Even from the point of view of the first home buyer, it is forcing them into locations often in the outer suburbs, into crowded new estates with minimal block sizes, as well as paying a premium (it is the land that holds it’s value, the house itself depreciates, meaning these new buyers will take a capital hit and can easily end up in negative equity territory). And especially in a cost-of-living crisis, why are we entrenching the thinking that a persons first home should be a big new home, much larger than older houses; rather than find a more efficient way for people to move up (and down) the property scale through life’s stages?

In the past 25 years (since GST came in and stamp duty was supposed to be abolished), income per capita has increased by 122% whilst house prices have increased by 165% (a 43% gap). If Stamp Duty was abolished today and we compared similar housing expectations (in terms of size), then the gap would be considerably smaller, in fact compared on like-for-like sizing, the cost difference would be negative.

There should be an incentive (or at least not a disincentive) to all home owners to be able to move to more suitable accommodation, both in terms of size as well as location. Get retirees out of houses to free the properties up for the next generation. Encourage people to perhaps move closer to where they work, thereby decreasing congestion and improving the environment whilst also reducing the cost to Government of required infrastructure upgrades like new roads.

I have used the example of housing because it is a perfect example of the dead loss that Stamp Duty causes. Stamp duty also applies to cars, so people hold on to older less safe cars (perhaps also less environmentally friendly or inappropriately sized). But did you know that 9% of your General Insurance Premiums are also Stamp Duty (up 70% since 2020 to $1.7 billion p.a. just for Qld)? That’s a significant portion of your insurance cost, and it’s no wonder why people are increasingly reducing or dropping their insurance cover.

So when we hear reports from this week’s Economic (or Productivity) Round Table, ask yourself why they talk about tax increases rather than making taxes more efficient. Or better yet, why Government doesn’t reduce spending, so we get to keep more of our own money?

Words from the wise

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving subsidise it” – Ronald Reagan.

“You don’t pay taxes – they take taxes” – Chris Rock.

“We have a system that increasingly taxes work and subsidises non-work” – Milton Friedman

As always, Onwards and Upwards!

Fred Carlsson

General Manager

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