property taxes and rates etc

Enough from the politicians – what do you think?!

Okay, so this post is about property taxes but I wanted to firstly plead with you to read on. Yes, we know this pre-budget tax-talk makes the eyes over glaze over. But Australia’s federal and state governments have a fine, long tradition of taxing property in all sorts of interesting and painful ways, so the question we want to ask you is simply this:

“Do you want your property taxes when you buy, during your ownership or when you sell? Or not all?!”

Idea 1 – tax us when we buy: This is the way we mostly do it now. Transfer duty (or stamp duty) is levied by every state government and it makes up a huge chunk of their revenue. A median-priced Brisbane home purchase will see you pay $7,500 – or just under $15,000 if it’s for investment.

Idea 2 – tax us every day: The Henry Tax Review of 2010 said we should slap a land tax on all property owners (as a replacement to stamp duties). Currently land taxes apply only once you own a minimum value of property (see your council rates notice for yours) and not on your own home. In Queensland it’s $350,000 for company-owned or $600,000 for individuals (approx 2 good Brisbane houses). This tax is paid every year so it’s like another hefty rates bill.

Idea 3 – tax us when we sell: One notable commentator’s this week argued we should all pay capital gains tax on the sale of our own home. (Only investors currently pay.) This gent argues, “Given the government’s current budget problems they should simply just phase in the removal of the capital gains tax exemption on the family home all together and automatically provide first home owners who buy a new home with the right to claim interest deductions.” So in his new world order everyone pays more tax to give first home buyers a tax deduction on their home loans… This commentator says it would make housing more affordable for the next generation.

To us, there seems to be one key discussion missing from all the ideas. Surely if you tax something you stop, or at the very least, discourage it. So if you want Australians buying real estate, whether for their homes or an investment, so they can self-fund their retirement, why would you tax their purchase? Similarly if land taxes make the cost of owning real estate higher than owning assets like public company shares or high-yielding condos in Florida, are we okay with seeing that money go elsewhere?

And taxing the sale of every Australian home? It’s another disincentive to owning a home and do we really want older residents to stay in their too-big houses, locking up housing stock and preventing them from moving to more suitable accommodation at each stage of their lives? Housing mobility must be essential to a healthy society.

Of course we all think we pay too much tax and in all of the scenarios above there’s pain for many of us and discouragement from using property for saving for our futures. So if Australia’s going to have a problem supporting our aging population wouldn’t we want to encourage personal saving and investing? And discourage spending?

We’d love to hear your comments!