For much of the past decade I lived in Vienna, Austria. If you own a television, a radio or even just an internet connection you pay the state about €25 a month for the privilege, to fund various national broadcasters. Think of it as Netflix, only compulsory…more expensive…not on demand…with ads…and shittier.
Of course, in Australia we also fund the national broadcasters. The particularly asinine thing about Austrian television tax is that it isn’t levied through the normal tax system. When a new household is formed, they are supposed to register with the TV tax regulator. But everyone ‘forgets’. One day years later, a representative comes knocking and signs you up – with no fine for prior non-payment.
I know people who got signed up for TV tax 6 months after moving in, and others who’ve been watching free TV for more than a decade and are still at large. They pinged us after about three years when my wife was at home on maternity leave. A large proportion of the tax raised must leak in the form of wages for enforcement employees.
This has almost nothing to do with the topic at hand. I mention TV tax only because it’s a silly tax. But not the silliest I can think of. That award quite likely belongs to stamp duty.
Stamp duty is the name for the one-off tax payable by the buyer whenever a property changes ownership. It’s the way we’ve levied property tax in Australia for decades. And it’s beyond silly.
It’s a terrible tax for at least a few reasons:
1. It’s lumpy
The below graphs shows the NSW government’s takings from transfers and stamp duties paid, republished with the permission of Pete Wargent. The bulk of this tax relates to property stamp duty, although Pete warns me that the spike in November 2016 relates chiefly to the Ausgrid sale. In the 2009 financial year, transfers and stamp duty raised less than $3bn for the state. In the 2017 year it was more than $10bn. This is a significant percent of the state’s overall tax receipts today, and it’s a very cyclical (and currently frothy) source.
Not to criticise the state’s recent handling of the largesse. A long overdue burst of infrastructure spending is an appropriate use of a tax source that might one day shrink. Running a budget surplus and paying off debt also makes sense. But a less cyclical tax source would be superior.
2. It’s applied unevenly
Australian states are fairly hamstrung in the ways they can generate tax. Property taxes are one of the few ways. But stamp duty is an acutely uneven way to apply it. If you don’t move house this year, your contribution to this part of the budget is zero. Oh, you want to move house? Send the state government half a year’s wage (or thereabouts). This leads directly to reason 3.
3. It’s a significant friction on the free movement of people
It imposes significant but often hidden costs on economic activity and well-being. Moving across town for a better job paying $5,000 more makes little financial sense if you incur a $40,000 one-off tax for doing so. Looking to move your business to another part of the state and actually hoping your staff move with you? Good luck. Considering downsizing? Why bother? I’d punt it even has a small dampening impact on birth rates.
The Economist suggests that stamp duty increases are a big part of why Britons move less than half as frequently as they did in the 1980s, and half as frequently as Americans do today. Mobility stagnation and economic dynamism do not go hand in hand.
Property taxes are one of the few ways states can generate income. I don’t think property-related taxes can or will go away anytime soon. But I think a broader land or land & property tax has the potential to solve all three drawbacks listed above.
What I mean here is a tax paid annually by all property owners, not just those who are moving house this year. More like how council rates are usually levied. It should be based on the market value of the property – Malcolm Turnbull and James Packer should pay more than most of us. And it should be set initially to raise an overall annual amount less than current receipt of stamp duty, let’s say $6-7bn annually in NSW’s case, recognising the frothy nature of today’s stamp duty inflows. It should work out to maybe $2,500 annually per NSW residential property, on average. It would be less at the median and lower again if commercial properties are incorporated.
An obvious question here is what about the poor bugger that bought a house last week? The easy solution is to pick a term, I’ll use 8 years here but it could just as easily be 5 or 10. If stamp duty has been paid on a property in the past 8 years it excuses an owner from the new broad-based tax until the 8th anniversary of their purchase. Then they pay, like everyone else. There might be other tweaks necessary, particularly around pensioners.
Short-tenured British Prime Minister Anthony Eden once quipped:
Everyone is in favour of general economy and particular expenditure.
I don’t like taxes, and would generally rather they be lower than higher. But if we expect the state to provide schools, hospitals and a properly secured cell for Eddie Obeid, we’re going to pay some. And surely a broader property tax makes a lot more sense than lumping it exclusively on those property owners buying this year.
Gareth Brown works as a Senior Analyst at Forager Funds Management, researching and selecting stocks for the Forager International Shares Fund. This piece originally appeared on Forager’s blog Bristlemouth. If you would like to register to receive all future Bristlemouth Blogs in your inbox, you can do so here.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.