The Australian states where house prices could fall by up to $50,000 to combat COVID-19

The cost of buying a house across Australia could fall by up to $50,000 as states consider slashing stamp duty to help the housing market recover from the COVID-19 crisis.

Stamp duty is paid to the state government upon the purchase of a property but economists argue it discourages home ownership and prevents older people from downsizing,  which frees up bigger homes for families. 

Amid a huge decline in the housing market during the pandemic, the Victorian government has signalled it could drop the much-hated tax to stimulate property buying.  

The federal government may also overhaul the property taxation system to combat the COVID-19 slowdown by creating a long-term ‘opt-in’ land tax.

For a $1million home in Australia, property buyers pay a stamp duty of $40,000 in New South Wales and $55,000 in Victoria.  

Under the proposed new framework homeowners would pay stamp tax up front and could then choose to pay land tax of a few thousand dollars a year on the value of a home’s unimproved land, The Australian Financial Review reported.

Unimproved land refers to how much a plot of land is deemed to be worth not including the cost of the home itself. 

The phasing out of stamp duty is already happening in the Australian Capital Territory, with the state government instead enforcing a slowly increasing land tax.

It comes after the COVID-19 pandemic crippled the housing construction industry and cost an estimated 70,000 tradesmen their jobs. 

The Victorian government is expecting property sales and house prices to fall about nine percent this year which is likely to bring a similar percentage fall in stamp duty, the state’s treasury said.

A report by outgoing National Australia Bank chairman Ken Henry when he was the former treasury secretary found stamp taxes were among the worst for stimulating economic growth. 

Property buyers pay a stamp duty of $40,000 in New South Wales, but that could change under proposed plans to replace the much-hated tax with an annual homeowners levy (suburban Sydney pictured)

Even before the coronavirus derailed the property sector a report by the Productivity Commission in 2019 urged Scott Morrison to ditch the ‘inefficient’ tax in favour of an annual homeowners’ tax.

‘Shifting from stamp duties to a broad-based property tax could leave New South Wales up to $5 billion a year better off, while also improving housing affordability,’ the report said.

‘Stamp duties are among the most inefficient and inequitable taxes available to the states and territories. 

Since the coronavirus crisis began Victoria’s property market has plummeted by nine percent, leaving a massive hole in their annual $6billion cash cow 

The Victorian Government is believed to be considering scrapping stamp duty in favour of annual land tax payments (stock image)

‘In contrast, property taxes – which are levied on the value of property holdings – are the most efficient taxes available to the states and territories.’

Victorian Premier Daniel Andrews has flagged that he would be in favour of major tax reform and is keen for the states and national cabinets to discuss the matter.

‘When it comes to national reform opportunities, you can always count Victoria in for that discussion,’ he told reporters last week.

‘Every significant drive or wave of national reform in our country’s history, Victoria has played a leading role in it and that won’t be changing.’