Don’t treat property as a cash cow in state budget: REINSW
Fearing that the property market will be used as a ‘rescue’ in the upcoming New South Wales state budget, the Real Estate Institute of New South Wales are warning the government to avoid the pressure of the federal budget to do so.
REINSW president Malcolm Gunning has urged Premier Mike Baird not to “follow the lead of previous governments who [have] used the property market to raise additional revenue” in a period where the market has shown recovery. He said that property shouldn’t be treated as a “cash cow” by the government.
“The property market is just showing signs of recovery and not all areas are enjoying growth. Property consumers and in particular first home buyers should not sit back and let this happen,” said Gunning.
He urged the state government not to increase land tax or stamp duty to plug budget holes.
In fact, some of his points closely match the 10 point budget wish list submitted by the Real Estate Institute of Australia for the federal budget.
Instead, a broadening of the GST tax base was suggested by Gunning.
“This should replace the revenue losses from the abolition of the discriminatory and inefficient state taxes,” he said.
The REINSW urged the state government not to increase land tax or stamp duty to plug budget holes.
“We have called on other state property institutes, associations and franchisors to voice their support for tax reform and we have already received backing,” he said.
“For too long the property market has been the state government’s cash cow and property consumers are now saying enough is enough.
New South Wales is expected to be $548 million over budget in transfer stamp duty collections for 2013/2014.
“Furthermore stamp duty rates have not been reviewed for 40 years. Bracket creep works in favour of government revenue and that is the reason it has not been reviewed. As a result of the failure to amend stamp duty rates, and the subsequent increase in property values over time, the average home is being taxed beyond that of which parliament initially intended,” he said.
“Change is long overdue and now is the time for Mr Baird to show he is a different sort of premier and remove these barriers to the property market and in particular provide support to first home buyers."
While Gunning suggested that pressure from the federal budget may encourage Baird to treat property in the manner of an additional revenue raiser, it may not indeed be the case that the federal budget has a significant effect on the property market’s strength.
Wakelin Property Advisory’s Richard Wakelin said that while the federal budget is a "horror budget", it’s unlikely to hinder the market.
“Although it may sound counter-intuitive, the sustainability of the property recovery will actually be helped by the response of consumers to the federal government’s austerity measures. It greatly reduces the likelihood of over-exuberance in the property market – which is already performing very strongly – and this subsequently transmitting into price inflation,” said Wakelin.
“It was the real threat of a resurgence in price inflation that was the greatest threat to the continuation of the property market’s recovery. Inflation had been stirring in recent months. Indeed it reached 2.9% in the March quarter, up from 2.2% six months earlier. If this trend persists it will inevitably force the Reserve Bank to raise the cash rate, possibly more than once.”
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Wakelin noted that it appears the RBA is confident in easing inflationary pressures, with wage restraint and the view that the property market is easing, and it has extended a period of stable interest rates.
“But observers of monetary policy will know that the Reserve Bank’s attitude can change in a relatively short time. For instance, were the Australian Bureau of Statistics to report a spike in recorded inflation in July, when they next publish, then the pressure to raise interest rates could mount,” he said.
He noted that the treasurer’s efforts may have “done enough” to temper exuberant behaviour and shops and at auctions, but not to the extent of losing positive sentiment completely.
“So despite the broad criticism of the Treasurer’s first budget, ultimately, it is much less damaging to the economy – and the property market – that inflation is reined in by an austere fiscal policy rather than the Reserve Bank raising the cash rate – which is a very blunt instrument that often takes months to exert the desired effect,” he said.
Recently, Josh Atherton answered the question ‘how will the budget affect property investors?’, saying that there are some changes (or changes that didn’t appear) that many investors should be thankful for.
