Victoria may one day follow in the footsteps of New South Wales by giving first homebuyers the option to pay land tax instead of stamp duty.
The Victorian government is currently reviewing its stamp duty system, with the option of switching to a land tax model being considered as a way to make buying a first home more affordable. The land tax model, which is already in place in NSW, would see first homebuyers pay an annual tax on the value of the land they own, rather than a one-off stamp duty payment when they purchase the property.
The change would be a significant benefit for first homebuyers, as stamp duty can often add tens of thousands of dollars to the cost of buying a property. Under the land tax model, first homebuyers would pay a smaller annual amount, which would be spread out over the life of their mortgage. This would make it easier for them to manage the cost of buying a home and may encourage more people to enter the property market.
The proposed move has been welcomed by Victorian industry groups and first homebuyers, who have long called for a more affordable and sustainable system for buying a first home. If the land tax model is adopted in Victoria, it could set a precedent for other states to follow and help make the dream of homeownership a reality for more Australians.
A survey of 1000 people conducted by the Urban Development Institute of Victoria in 2022 found that 43 per cent of respondents with a mortgage thought the removal of stamp duty would make housing more affordable.
Stamp duty has also been criticised by many economists as a grossly inefficient tax. It has also been blamed for exacerbating the housing affordability crisis, discouraging people from moving or downsizing and adding a layer of unpredictability to state budgets.
The Victorian Chamber of Commerce and Industry (VCCI) recommended in its 2022 state election policy platform that Victoria replaces stamp duty with a broad-based land tax system.
But the Victorian government remains cautious about what some see as a politically risky reform, particularly as the state wrestles with an energy crisis, soaring inflation, rising interest rates, budget challenges, and a severely stretched hospital system.