When the ensuite off your bedroom features Italian marble, a rainfall shower head and a double basin with the best Swedish tap mixers on the market, it's not a sign of your innate tastes in bathroom luxury.
It's probably more evidence that the tax system, specifically stamp duties, are warping our approach to property.
NSW is making significant changes to stamp duty.Credit:Paul Rovere
NSW Treasurer Dominic Perrottet's plan to ultimately replace stamp duty with a property tax is recognition that the state's tax mix is leading to poor economic and social outcomes, albeit leaving us with bathrooms the size of small apartments.
Stamp duty, as any person who has bought a home knows, is a big upfront cost. On average in NSW it is around $26,000, usually dropped on to the mortgage and gradually paid off.
It is such a large upfront cost that it discourages people from moving house, perhaps to take on a new job, or to downsize when family circumstances change. Unless it's smoking or alcohol consumption, you don't want a tax so large that actively distorts an activity.
As PwC chief economist Jeremy Thorpe noted, it is major incentive for people to stay put and renovate the bathroom "to the nth degree" rather than look for a property elsewhere.
It's also a major problem for the states who depend heavily on stamp duty for general revenue. In both NSW and Victoria, stamp duties account for about 25 per cent of their own tax revenues.
That means the coffers of both the NSW and Victorian governments depend far too heavily on one tax that could be up-ended by a major economic dislocation - such as the coronavirus recession.
The aim of moving from stamp duty to a property tax is twofold. The first is to get rid of a clear economic disincentive while also giving the state a more balanced tax base.
This is a big change. There are about 200,000 property transactions a year that account for the state's stamp duty revenue.
NSW Treasury believes once the move to a property tax system is fully in place, 3.5 million properties will be liable.
That's a lot of people who don't pay tax now being hit with an annual impost. But in structuring it as an opt-in system, Perrottet is hoping to avoid sticker shock as he looks for a long term economic payoff.
That payoff could be substantial.
The ACT government is half way through its 20-year plan to axe stamp duty on property sales (as well as duties on general and life insurance).
Unlike NSW, the territory is gradually reducing stamp duty while increasing property rates so as to protect its revenue base during the process.
In raw dollars, it has meant that buying a $500,000 property in Canberra's suburbs will cost a person about $11,400 in stamp duty compared to $17,900 on a similar valued property across the border in NSW or $21,970 in Victoria.
An independent review by Victoria University this year found the tax mix switch had driven a real increase in economic growth, investment, private consumption and wages across the ACT.
It also found that even with another 10 years before the policy was fully in place, it had increased property sales (as people could afford to move rather than renovate another bathroom) and unimproved land values.
And this is what Perrottet is trying to achieve with his proposed tax change.
With global interest rates at record lows, the cost of borrowing to cover the immediate revenue shortfall caused by the policy change is a a small price to pay for the longer term economic benefits.
Dominic Perrottet's counterpart in Victoria, Tim Pallas, now has the political cover to embrace a similar change in his budget next week.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
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2020-11-17 04:38:00Z
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