Stamp Duty vs Land Tax: The Shift

Key takeaways

• Stamp duty penalises moving - which locks people into unsuitable housing.
• Land tax is considered more efficient because land supply is fixed.
• The transition creates a revenue hole for states during changeover.
• Rates, thresholds and concessions differ by state and change every budget.

Why do economists dislike stamp duty?

Because it taxes the act of moving. A household that would be better off in a different home - closer to a new job, smaller after children leave, larger after they arrive - faces a substantial one-off cost for making that change.

The result is that people stay put when they should not. Downsizers keep large homes, workers commute further than they would choose, and the existing housing stock is used less efficiently than it could be. With a projected shortfall of about 262,000 dwellings against the Housing Accord target to June 2029, using existing stock badly is not a trivial cost.

Land tax does not have that effect. Land cannot be moved or hidden, and its supply does not shrink when you tax it, so an annual land tax changes behaviour far less than a transaction tax of the same value.

So why has the shift been so slow?

The transition gap is the hard one. A state switching over collects neither the stamp duty it gave up nor a mature land tax base for many years, which is a genuine fiscal problem rather than a lack of political will.

Different jurisdictions have taken different approaches - long phased transitions, opt-in choices for buyers, and reforms confined to particular property classes. Some have been introduced and later reversed.

What should a buyer actually check?

This is the part where general commentary stops being useful and your own state's current rules take over. Rates, thresholds, concessions and any transition arrangements differ by state and are changed at almost every budget.

• Your state revenue office is the authoritative source for current stamp duty rates, land tax thresholds, and first home buyer concessions.
• Check foreign purchaser surcharges if any buyer is a non-resident - they are substantial.
• Check the land tax position on investment property, including whether holdings are aggregated across the state.
• Model the annual cost, not just the purchase cost, if a transition option is available to you.
• Get advice for anything structured - trusts and companies are frequently treated differently and often worse.

For most owner-occupiers the practical consequence is simply to budget stamp duty properly as part of the upfront cost, since it is usually the largest single transaction expense and is not lent to you.

Frequently asked questions

Why do economists prefer land tax to stamp duty?

Because stamp duty taxes transactions, discouraging people from moving to housing that suits them better, while land tax applies to a fixed supply and therefore distorts behaviour far less. The efficiency argument is long-standing and broadly agreed.

Which states have replaced stamp duty with land tax?

Approaches differ and have changed over time, including long phased transitions, opt-in arrangements and reforms limited to particular property classes. Check your state revenue office for the current position, since these have been introduced, amended and in some cases reversed.

Do first home buyers pay stamp duty?

Most states offer full or partial concessions for first home buyers below a price threshold, but the thresholds and eligibility differ by state and change regularly. Confirm the current rules with your state revenue office.

Is stamp duty included in my home loan?

No. Stamp duty is paid from your own funds at settlement, not lent to you, so it must be budgeted alongside the deposit. It is often the largest single upfront cost after the deposit itself.

Related reading

• Total Upfront Cost: Beyond the Deposit
• The 262,000-Dwelling Shortfall and Where It Bites Hardest
• Best Interests Duty, Five Years On

Sources

• Tax reform and housing affordability research — Productivity Commission
• Taxation Revenue, Australia — Australian Bureau of Statistics