Duties Amendment (First Home Owner Concessions) Bill 2024
Extract from Hansard
[COUNCIL — Wednesday, 21 August 2024] p4000b-4010a
Hon Neil Thomson; Hon Dr Brad Pettitt; Hon Dr Steve Thomas; Hon Sue Ellery
HON DR STEVE THOMAS (South West) [3.54 pm]: I thank the Deputy President for the opportunity to once again discuss taxation policy, particularly as it relates to housing, through the Duties Amendment (First Home Owner Concessions) Bill 2024. I come back to the comments of my friend Hon Dr Brad Pettitt because I thought that was quite an interesting contribution. I could not quite work out whether he was swinging to the left or the right; I think he was somewhat inconsistent. I do not think it is the case that going for some left-wing policies and some right-wing policies makes someone a centrist; it is just a mixture of left wing and right wing. Anyway, I thought his contribution was quite interesting.
Once again, we have come here to debate a duties bill that will reduce the level of duty being paid for certain transactions. Once again, I welcome the bill before the house and say that I support it, because any reduction in taxation and duties should be welcome. I do not intend to spend the full 45 minutes talking about this. I know some members will find this disappointing because they love to hear an economic debate, but I do not think we need to go through an intimate level of detail. However, there are a few things that should be noted. The first and most important is that it is all but impossible not to support the bill. If a member believes in putting a bit of money back into the pockets of first home owners who are trying to get into the housing market, they support the bill. I cannot imagine anybody standing up and not supporting the bill. Although Hon Dr Brad Pettitt kind of supports that action, he would like to see other things occur as well, but I do not imagine he will actually stand and oppose the bill today. I think we all support the bill. It is a modest contribution towards putting money back into people’s pockets.
Before we get into some more technical details, the only question that can really be asked about this bill is whether it is sufficient. This government has had very high revenues, and it looks like the iron ore price will slowly correct over the next few months. The mining boom is slowly correcting. It actually went up overnight.
Hon Dan Caddy interjected.
Hon Dr STEVE THOMAS: No, it just proves that I was right—that is very good.
Hon Darren West interjected.
Hon Dr STEVE THOMAS: It is very hard, Hon Darren West, because if the numbers prove that I am right, the numbers prove that I am right. Ultimately, the government has had five and half years of boom and it is slowly correcting. The government had $6 billion surpluses over a number of years. The only question before the house is whether the amount of money being put back into people’s pockets is sufficient for the fiscally good times that the government has found itself in. I will not comment too much on that. The government is investing $13 billion-plus in Metronet instead of putting more money back into other things; that is what governments do. They choose where their investments will go. This government has not invested significantly in debt reduction; it has invested in infrastructure. I think that has had a significant impact on the cost of housing, but we have debated that before and it is probably of no great value to go through that detail again. The only question before the house is whether this is sufficient. Is moving the stamp duty thresholds by the levels proposed by the government a sufficient response? The explanatory memorandum explains the entire bill in two dot points at the beginning of the document. The first dot point states —
• properties valued up to $450,000 … are exempt from transfer duty; That was previously $430 000. The second dot point states —
• properties valued between $450,001 and $600,000 … receive a duty concession. That was previously $430 001 to $530 000.
Obviously, this does not fix what people currently call the housing crisis. I do not imagine that the government is suggesting that this cures the housing crisis. The housing crisis is an example of the free market in action. From the comments I have heard so far today, there is a bit of a mixture of those who believe in a free market and government intervention at the same time. One of the issues is, as we have said before, that the free market has driven up the price of housing to an incredibly high level. Currently the average house price in Perth is close to $680 000. That is a massive price. Those of us who have been around for a fair while—not looking at anybody in particular, Hon Martin Pritchard—remember when interest rates were significantly higher than the average current housing loan rate of 6.3 to 6.4 per cent, which is lower than the rates during the entire period in which I paid off my first house. Although we are complaining and concerned about interest rates, they are not really the cause of the problem. I am still amused that all those media outlets that harangued the former Reserve Bank of Australia Governor Philip Lowe and called for him to be kicked out, and ultimately were successful in doing so, have not called for the sacking of the new Reserve Bank Governor, despite the Reserve Bank again raising interest rates soon after her appointment. The hypocrisy of the story around that is just astounding. That is what happens when we throw out economic principles and simply go to emotion, which is where the housing market very much sits. This is a free market. People in Western Australia still have, for the most part, a significant amount of money to spend, which drives the housing price up. A group of people are struggling to get into the housing market because the price is so high. Why is the price so high? Because people with money are driving it upwards. That is precisely what is happening. People are getting rich out of this. People of my generation who own housing are pretty damn pleased to see the average housing price go up from $400 000 to $680 000. They can put that on their bottom line. Their debt levels have been wiped out by capital growth in their asset. If we want to put housing within reach of that group of people who are struggling on a less than average income or who are low-income earners, the only way that we will ultimately have a huge or significant impact is to put in policies that stop the growth of housing prices and probably drive prices down.
Members will remember that I have said before that up until the previous burst over the last 12 months, the housing price in Perth had to stagnate until about 2036 with zero growth to return to the sorts of levels that previous generations enjoyed in terms of comparative income and house price. That unsustainable wealth creation has driven housing prices up, but it is ultimately a free market that does that. What happens when rental prices are driven up? The old rule around rentals was that the rental price should be about 10 per cent of the price of the house. If someone bought a $500 000 house, they should be getting $500 a week for it. That was always the rule of thumb around real estate. The average price now for a house in Perth is $680 000, so if we go by the standard rule of thumb, the owner should be charging rent of $680 a week. Part of the problem is that there is so much money at the wealthy end of the Western Australian economy that people are paying that. In fact, people are competing. People are putting in free cash bids on top of putting in higher bids for rent and driving the price of rentals even higher. They are putting in additional bids on the price of properties and driving those even higher. It is the free market in action. For those of us who are free marketeers—I admit, as the crusty dry right wing of the Liberal Party, I accept that free markets exist and we just have to accept in many cases what the free market does—the reality is that that is not always the best outcome, not that I would join the left and start to manipulate those outcomes. Ultimately, if we want to change the outcome of housing prices in Perth, that is the only way to go. I am really pleased that the government has not done that. I am really pleased that the government has reduced the level of duty, albeit at a very small level, but every small bit of positive is a bit of positive, so that is good, but it has not driven down housing prices. I suspect for various political reasons that although it is possible for the right policy to drive down housing prices, everybody who currently owns a house, which probably includes most of the members in the room today, would not be all that pleased. They are not likely to find it overly acceptable if we were to knock $100 000 off the net worth of everybody in Perth who currently owns a house. I do not imagine too many of those voters would be pleased so I understand why we have gone down the path that we have.
In the fairly short time I have, it is also worth addressing some of the issues around stamp duty itself. Again, I have enormous respect for Hon Dr Brad Pettitt. We take a different view on some of these issues but there is some truth in the way he addresses that urban sprawl is probably enhanced by the current system. Again, I believe in the free market so I think the market will drive itself. There are things we can do to try to increase infill and I think that is a good thing. It is very much about the provision of services more than anything else. Industry will infill if the level of service is adequate. At the moment, there are issues around water and wastewater connections, and particularly energy, which is very slow. This makes those issues significantly worse. You have to accept that the free market is a reasonable thing. That is not necessarily a position the Greens generally take, but the free market does work that way.
Hon Dr Brad Pettitt: Not if it’s making house prices unaffordable for a whole generation.
Hon Dr STEVE THOMAS: Yes, and the free market is. Ultimately, in one shape or form, the free market will have to correct that in the fullness of time. The smart people will keep their real estate investments until they work out precisely when the crash is going to occur and get out at the right moment. Not everybody is a Warren Buffett and I understand that. The safety mechanism of real estate is that people can be pretty much guaranteed that even if they own a property and can stay in the marketplace long enough and the price drops a couple of hundred thousand dollars on average, it will gradually climb back up again. That has happened before. Real estate prices have dropped and have gradually picked up again over time. That is the more natural market cycle that occurs when there is not quite so much stimulus in the economy, which makes it possible for people to put a lot more money into their housing than they would otherwise.
The questions the member raised were: Why does this tax exist? Is it a lazy or inappropriate tax? As governments, we tax the things that are easy to see. It is generally as simple as that. It is harder to tax things that are difficult to monitor. What do we tax? We tax income, real estate and wages because that is the simple stuff. Everything is fairly easily recorded. We tax the things that are fairly simple to pick up and tax. The argument about whether we shift from a transfer duty to a land tax is interesting. The Australian Capital Territory has gone down that path. I think it was made voluntary at the start of the process. New South Wales was talking about it at the last election. In the ACT, the total tax take when the two were combined went up significantly. More tax was coming out under its transfer model. The difficulty is that it is a significant tax. In Western Australia, it is a $4 billion argument when we look at transfer duties. When there is a $6 billion surplus, I could argue it is not so much but, as the economy corrects, that $4 billion is going to be pretty important to build a school, pay hospital workers or whatever else it is. Something has to be taxed. The transfer duty argument is a difficult one because most state governments do not want to reduce their overall tax intake, so it is simply a transfer. I understand the real estate industry in general prefers a transfer duty. In my view that is not because of the market stimulus. It is because stamp duty is applied at the point of sale and the point of purchase. It ends up on all the bills, including the bills from the real estate agent.
Hon Dr Brad Pettitt: Is this for land tax?
Hon Dr STEVE THOMAS: No, this is for stamp duty. If you purchase a property, you pay 15¢ in the dollar over a certain amount as stamp duty. Almost everybody includes that generally in their financial package. A person has a certain amount of savings, the rest is paid by loans and the stamp duty simply rolls in. In fact, because of that the Australian Taxation Office lists stamp duty as a capital asset. You cannot just pay stamp duty on an investment property and claim the $35 000 paid as an instant tax write-off. Because it is a tax, you would think that would apply because the property is an investment. That amount cannot be written off, because the position of the Australian Treasury is that it gets rolled into the price and becomes part of the asset. For the most part, that is exactly the way it works. When someone sells their property, it is generally valued and the stamp duty sort of gets rolled in. The assumption is that the stamp duty will be part of the transfer process. The real estate agencies do not like it because it then becomes a part of their process. It is interesting that we do not talk about reducing real estate fees at the same time as we reduce stamp duty because it is easy to blame the government for these processes. The
stamp duty is expected to be rolled in as part of the asset and it is not treated as a tax expense, so it is different to most of the others.
Land tax is a difficult argument for the Liberal Party to partake in, but when that land tax is rolled in, if the land tax and stamp duty income is simply to be replaced, a significant amount of land tax is then placed on every household every year. Right now, it is particularly difficult for lower income earners. The stamp duty might be $35 000 and that becomes a part of the loan. A proportion of the repayments go into paying off the stamp duty. If you pay six per cent interest on $35 000, that is nearly $2 000 worth of interest every year. If a bit of capital is being paid off, on a 35-year loan it is another $1 000, so it is a couple of thousand bucks. It is in the loan, so you will not notice that as much as when you get the $2 000 land tax bill. Before members laugh and say that everybody gets a $2 000 land tax bill, that is the minimum price we expect. The low income earner who can manage their bank repayments and does not really notice the stamp duty going on top is suddenly paying an extra couple of thousand dollars in land tax. I tell you what, they notice that. The government that moves into this process is, as Sir Humphrey would say, very brave, because people notice every year that instead of the one-off bill that they get when they purchase their property—which the real estate agents, the settlement agents and the property councils hate because it gets attached to their work—the government gives them a bill every year. They get a $2 000 bill every year and, I tell you what, the hatred is suddenly directed at the government. To transfer is not as easy as people think.
The economic impacts will depend upon the special interest people have when they do their research. Some people will be better off. If someone works in an area in which they are likely to transfer jobs and shift a lot, a land tax is absolutely a better model. If someone is likely to be stable, they buy their first home and they stay there for a long time, they will be far worse off paying the $2 000 land tax bill every year. Yes, there are winners and losers, and it is always dangerous when governments pick winners and losers. I am not convinced that there is an easy solution. The free market will run and at some stage it will have its natural problem point. I think stamp duty is very difficult to remove because we get stuck with the model in which we tax what we can. If a government was ever to do it, it would do it when it had massive surpluses. I think that time has gone. Obviously, the government does not intend to do that. The government will go to an election and spruik the things it has done and what it has spent its money on, and the opposition will criticise and say what it might have done in the meantime. That is the normal process. I look forward to watching and commentating on it, and having as much fun as I can doing so.
In summary, it is impossible not to like this bill, even though it is remarkably modest in its aims and endeavours. I am always of the view that we should try to take the government’s hand out of people’s pockets, and this bill will do this to a modest level.
Turning to the greater debate around housing, this will not fix the price of housing or access to housing. This is not the solution to a housing crisis. Those solutions are far more difficult. Anybody who thinks they have an easy and simple solution to the housing crisis is probably an idiot. Do not listen to them and walk away as quickly as possible. It is a complex area of economic policy. But let us give something back to the people of Western Australia as best we can. I support the bill.
