The housing market's downturn is wreaking havoc on state budgets, particularly in New South Wales and Queensland. As the housing correction takes hold, led by Sydney and Melbourne, property sales are declining, and auction clearance rates are plummeting. This is a stark reminder of the states' heavy reliance on stamp duty, a volatile revenue source. The situation is further exacerbated by rising interest rates and uncertainty surrounding federal tax changes, including negative gearing and capital gains tax (CGT).
NSW Treasurer Daniel Mookhey predicts a $5 billion decline in stamp duty receipts over four years, while Queensland Treasurer David Janetzki is also preparing to downgrade forecasts, citing a range of factors including the Middle East conflict, interest rate hikes, and federal budget uncertainty. The housing market slowdown has exposed the fragility of state finances, with economists pointing to cost-of-living pressures, geopolitical instability, and interest rate hikes as the main factors behind the weaker stamp duty receipts.
The situation is particularly dire in Victoria, where the budget assumes a recovery from 2027-28. However, analysts like Saul Eslake and Stephen Koukoulas warn that these forecasts may be overly optimistic. Koukoulas suggests skewing assumptions to the downside on both price and volume of sales, as he doesn't foresee stamp duty roaring back in 2027-28. The irony is that while federal budget changes to negative gearing and CGT are expected to boost federal revenue, they could deprive states of stamp duty revenue by lowering prices and stifling turnover.
This housing correction is a wake-up call for policymakers, highlighting the need to consider alternative revenue sources. Economists agree that replacing stamp duty with annual land taxes would provide steadier revenue and fairer outcomes for homeowners. The challenge now is to find a sustainable solution that balances the need for stable revenue with the well-being of homeowners and the broader economy.
