Property tax reform overdue in Western Australia

In 2006, there were around 72,000 property transactions in WA and the median house price in Perth was a smidgen under $500,000. A decade later, transactional activity had fallen to about 33,000 sales and the median price is sitting at around $520,000.

Think about that for a moment; we now have less than half the sales activity, despite some 600,000 more people living in Perth. Revenue to the Government from transfer duties must have also at least halved.

Successive State Governments have relied for too long on property related taxes, specifically transfer or “stamp” duties, as a source of reliable income.

Transfer duty is a costly and inefficient tax

Transfer duty (along with payroll tax) is one of those taxes considered inefficient because it acts as an obvious disincentive to buying property. The transfer duty on Perth’s median house price is about $18,000 (assuming you’re not eligible for a first home buyer concession), and most buyers borrow this money as part of their mortgage, adding on many more thousands to the life of their loan.

Trading up to buy a bigger family home, for say $800,000, sets you back close to the same amount as the average annual salary in transfer duty costs. It is little wonder transactions have halved. Home owners are understandably more inclined now to stay put and add a bedroom or renovate the kitchen for the same amount of money. No wonder Bunnings is so busy on the weekends!

We all know State Governments need to raise money for important infrastructure and services, but budgeting for income based on property taxes is misguided because the free market determines sales volumes, not the Government.

In 2006, no one could have accurately predicted that market values would have stagnated and transfers would have halved 10 years later. Forward estimates, typically three years, aren’t much better, with successive governments either under or over estimating revenues from property taxes year after year. About a third of all state revenue, other than the GST, is property tax related.

REIWA survey results show negative impact of transfer duty on WA lives

As part of its State Election campaign, REIWA recently surveyed 455 members of the community at random, 90 per cent of whom stated property related taxes are a barrier to them investing in property. Additionally, 85 per cent said they’d consider buying their first or an additional property if it was guaranteed property taxes, like transfer duty and land tax, did not increase.

With housing affordability such a hot button issue, encouraging investment in property by removing taxation barriers releases more property options into the market, adds to housing diversity and opens the market to natural unencumbered freedoms.

It’s time one side of politics committed to a state tax review and found a model that removes inefficient, unproductive and outdated taxes.