In the realm of taxation, few policies are as contentious and economically harmful as stamp duty on property transfers. This levy, imposed on the purchase of homes, has long been a staple of state government revenues in Australia. However, its effects extend far beyond the immediate fiscal intake, distorting markets, stifling mobility and exacerbating intergenerational inequities. Drawing on economic analyses, including insights from the Adam Smith Institute's report Stamped Out: The Economics of Abolishing Stamp Duty on Primary Residences, this article explores why stamp duty is profoundly destructive and critiques recent decisions by the New South Wales government under Premier Chris Minns to retain it, as well as the Australian Capital Territory's faltering efforts to eliminate it entirely.

The Economic Destructiveness of Stamp Duty

Stamp duty, often referred to as conveyance duty in Australia, is a transaction tax applied to the transfer of property ownership. While it generates significant revenue for state governments, its economic costs vastly outweigh the benefits. Economists widely regard it as one of the most inefficient taxes because it discourages mutually beneficial exchanges in the housing market. By imposing a substantial upfront cost on buyers, stamp duty reduces the number of property transactions, leading to a phenomenon known as 'housing mismatch'. This occurs when individuals remain in homes that no longer suit their needs, such as oversized properties for empty-nesters or undersized ones for growing families, simply to avoid the tax penalty of moving.

The deadweight loss associated with stamp duty is particularly severe. Deadweight loss represents the economic value destroyed by a tax beyond the revenue collected, arising from altered behaviours that prevent efficient resource allocation. Studies indicate that a 10 per cent increase in stamp duty can lower housing turnover by 3 per cent in the first year and up to 6 per cent over three years. In Australia, this translates to fewer moves for job opportunities, reduced labour mobility and lower overall productivity. For instance, young professionals may be deterred from relocating to high-productivity cities like Sydney or Melbourne due to the prohibitive cost of purchasing a new home, thereby hampering economic growth.

Moreover, stamp duty suppresses housing supply and inflates prices indirectly. With fewer transactions, there is less incentive for developers to build new homes, as the market becomes less fluid. The Adam Smith Institute estimates that abolishing stamp duty in a similar context could facilitate the construction of thousands of additional homes annually, boosting construction spending and generating broader economic activity. In Australia, replacing stamp duty with a broad-based land tax could yield similar benefits, with research suggesting an economic boost where around 80 per cent stems from removal of the duty itself. Yet, the current system perpetuates a cycle of inefficiency: governments collect revenue, but the economy suffers from reduced activity estimated to cost billions in forgone growth.

Intergenerational Unfairness Embedded in the System

Beyond its macroeconomic impacts, stamp duty is profoundly unfair across generations. It disproportionately burdens younger Australians, who face escalating property prices and thus higher duty payments when entering the market. Over the past generation, stamp duty costs have nearly tripled relative to incomes, making homeownership increasingly elusive for millennials and Generation Z. Older generations, who purchased homes when prices were lower, paid comparatively modest duties or avoid them altogether by downsizing infrequently.

This creates a locked-in effect, where older homeowners remain in larger properties to evade the tax, reducing the availability of family-sized homes for younger buyers. The result is a transfer of wealth from the young to the old, as the tax system favours those who have already accumulated assets. In productive urban centres, this locks younger workers out of opportunities, perpetuating inequality. As the Adam Smith Institute notes, such taxes trap older people in unwanted homes while denying the young access to suitable housing, with dire consequences for social mobility.

Critiquing the Minns Government's Retention of Stamp Duty

In New South Wales, Premier Chris Minns' decision to retain stamp duty, while scrapping his predecessor's reform, exemplifies a missed opportunity for meaningful change. The previous Coalition government under Dominic Perrottet introduced an optional scheme allowing first home buyers to opt for an annual land tax instead of upfront stamp duty, aiming to reduce barriers to entry. Minns, however, vowed during the 2023 election campaign to abolish this 'forever tax', arguing it would burden homeowners with ongoing payments tied to property values. Upon taking office, he followed through, replacing it with increased exemption thresholds: stamp duty is now waived for first home buyers on properties up to $800,000, with concessions up to $1 million.

While these concessions provide short-term relief, they do little to address the underlying inefficiencies. Critics, including former Treasurer Matt Kean, argued that Minns' approach eliminates choice and forces buyers into large upfront payments, potentially driving up prices without resolving mobility issues. Economists warn that exemptions can inflate demand in the exempted bracket, pushing prices higher and benefiting sellers rather than buyers. By clinging to stamp duty, Minns prioritises political expediency over economic reform, perpetuating a tax that hinders NSW's housing market and intergenerational equity.

The ACT's Inability to Fully Abolish Stamp Duty

The Australian Capital Territory offers a contrasting yet equally cautionary tale. In 2012, the ACT embarked on an ambitious 20-year plan to phase out stamp duty, replacing it with increased general rates, a form of land tax. Progress has been notable: duty has been abolished for commercial transactions under $1.5 million, insurance premiums, certain leases and off-the-plan residential purchases up to $500,000. Residential conveyance rates have been reduced annually, making them among the lowest in the nation.

However, the government has struggled to complete the abolition. Chief Minister Andrew Barr has acknowledged that stamp duty will remain part of the tax system for a considerable time, citing revenue dependencies amid economic pressures. This inability stems from the challenge of transitioning without short-term revenue shortfalls, as land taxes take time to ramp up. While the ACT's model demonstrates the feasibility of reform, its incomplete status highlights political and fiscal hurdles. Full abolition could enhance mobility and productivity, yet the government's hesitation risks entrenching remaining duties, to the detriment of younger Canberrans facing housing affordability crises.

Towards a Fairer Future

Stamp duty on housing is not merely a revenue tool; it is an economic anchor that drags down growth, distorts markets and unfairly burdens the young. The experiences in NSW and the ACT underscore the need for bold reform: abolishing it in favour of efficient alternatives like broad-based land taxes. As evidenced by economic models, such a shift could unlock billions in activity, increase homeownership and promote equity across generations. Policymakers must prioritise long-term prosperity over short-term gains, ensuring Australia's housing market serves all citizens equitably.