Victorian advisory body calls for stamp duty reform
The state’s independent advisory body, Infrastructure Victoria, has called on the government to phase out stamp duty and instead shift to a statewide land tax on residential property.
Infrastructure Victoria has called for a stamp duty reform following the release of its latest strategy report.
The advisory body has had an ongoing “30-year infrastructure strategy” report updated every three to five years, which outlines a practical plan for the policies, reforms and projects that will benefit Victoria’s communities over the coming decades.
Infrastructure Victoria’s final version of this year’s strategy will be tabled in the Victorian Parliament in late 2025.
Currently, for property contracts entered on or after 1 July 2021 in Victoria, buyers purchasing a home have to pay a tax on the transfer of land ownership which is calculated based on the property’s value.
As a result of this upfront cost, Infrastructure Victoria argued that stamp duty discourages people from moving into different homes as their lives change, and instead pushes home buyers to commit to purchasing a larger “forever home”.
The report said that in Victoria, many larger homes are only affordable in new suburbs, necessitating infrastructure development, which is often more expensive than in established suburbs.
The advisory body said that by incentivising buyers to live in new suburban areas, stamp duty has also created higher infrastructure costs for the Victorian government.
By phasing out stamp duty on residential properties over time, Infrastructure Victoria said that the government would be able to both lessen infrastructure costs and benefit from improved economic productivity.
Additionally, the report said that removing stamp duty would reduce the upfront tax on buying a home and enable home buyers to find a house that suits their current needs.
The advisory body further noted that this change would also make it easier for people to move to locations where jobs are available, facilitating businesses’ staff recruitment and contributing to greater economic productivity.
The potential benefits of a shift to residential land tax
With stamp duties raising $8.3 billion in the 2023–24 financial year, Infrastructure Victoria emphasised that transitioning away from stamp duty must be carefully conducted over the long term to avoid disruptions to government revenue and the housing market.
To compensate for the tax revenue lost from stamp duty, Infrastructure Victoria recommended that the government expand land tax to cover all residential properties.
While stamp duty comprises a single upfront payment, a shift to land tax would provide a “steadier revenue stream for governments” as it would change yearly based on land value.
The report noted Victoria has recently made changes to stamp duty, including a shift to land tax for commercial properties over the next decade, and expanded concessions for off-the-plan apartments, townhouses and units, which drove a surge in interest last November.
Infrastructure Victoria said the ACT government’s tax reform scheme, which will see the state reduce stamp rates while increasing land taxes over a 20-year period, is a “good model for the Victorian government to consider”.
The report estimated that shifting from stamp duty to land tax in Victoria would cost between $1 million to $5 million, and could be funded by general government revenue.
The figure took into account the cost of developing a legislative impact assessment, consulting with stakeholders, and undertaking processes to amend and adopt new legislation.
The estimate also considered expanding government systems necessary to increase residential land tax collection, which the advisory body said could be conducted by existing government staff.
The CEO of the Real Estate Institute of Victoria (REIV), Kelly Ryan, welcomed Infrastructure Victoria’s recent findings on the negative impacts of stamp duty on housing affordability.
Ryan strongly supported the removal of stamp duty, describing it as a “fundamentally inefficient tax” that restricts investment and mobility in Victoria’s property market.
“Having advocated in favour of a broad-based property tax as an alternative taxation source, the REIV calls on the Victorian government to engage with sector stakeholders and experts in conducting a comprehensive review of Victoria’s property taxation system,” Ryan said.