Axe the roller coaster tax
This month, the South Australian government announced it is taking an axe to stamp duty.
Over the next three years, stamp duty on commercial property transactions will be phased out – giving businesses a reason to party in the festival state.
And for good reason.
The savings on a $1 million commercial property purchase will equate to $48,830. A $5 million investment will save $268,830 in stamp duty, while a $10 million transaction will save $543,830.
These sorts of savings grab the attention of both investors and corporate boards, and give Adelaide a powerful competitive advantage over other cities.
In the ACT we are now three years into the ACT Government’s 20 year tax reform program. The Property Council has to date supported tax reform in the Territory because stamp duty revenues are unpredictable from year to year, and they hurt the local economy. In fact, federal Treasury modelling has found that Australia’s economic welfare is reduced by 73 cents for every dollar of stamp duty collected.
However, when the ACT tax reform program was introduced, the promise was for tax neutrality. That is, that rates increases will be compensated by the gradual abolition of stamp duty.
Unfortunately, for the nonresidential property sector, this has not been the case.
Commercial property rates increased by 14 per cent in some parts of Canberra’s CBD last financial year, and by 27.5 per cent the year before that. These rapid increases have not corresponded with similar adjustments in stamp duty.
Speaking at Property Council function recently, the Chief Minister told the audience that his government’s objective was to have the lowest commercial stamp duty rates in the country, which would “save money and give our city significant advantage.”
Andrew Barr is certainly on the money. In a global marketplace, competition for investment dollars is fierce. And in a tight economy, corporate boards are looking at how to cut costs – and upping stumps to a more favourable location is always an option.
In this operating environment, South Australia has a head start on us. To catch up, we need to get serious about stamp duty.
Catherine Carter is ACT Executive Director of the Property Council of Australia