State-Sanctioned Larceny

Buy a home and Brumby pockets a five-figure sum. Stamp duty is a plain ripoff.

I HAVE always been amazed at how passively Victorians accept the outrageous impost of stamp duty when buying their homes. In which other circumstance would any normal individual willingly sign over tens of thousands of dollars to a government for nothing in return - not even a stamp?

Of all the oppressive and inequitable ways in which state politicians raise money, I would rate the exploitation of problem gamblers in pokie dens as the worst, and stamp duty on home purchases a close second.

Last financial year, John Brumby's government collected about $3.6 billion in duty on property transfers. Based on current stamp duty rates, anyone buying a house in Melbourne at the June quarter median price of $559,000 faced an additional bill of $28,610 to cover Brumby's share.

Most victims of this fiscal larceny are middle class. Many are mortgaged close to their financial limits just to cover the house purchase. Stamp duty adds tens of thousands of dollars to their mortgages - and years to the length of time they must toil to pay it all off.

Many of these people are also second or third-time mugs. Sometimes, through no fault of their own, people have to move house - to cater for extra children, perhaps, or to scale down after a divorce. On each occasion, the state helps itself to an additional five-figure slab of their savings.

Why do we put up with this? Why isn't this outrage higher on the list of issues people will consider when casting their votes at the state election on November 27? And why isn't there a riot outside Brumby's office when he indicates, as he did this week, that large stamp duty cuts are off the table?

One explanation for our collective acquiescence on stamp duty is what might be called the wealth illusion. When prices rise, owner-occupiers tend to feel richer - even though they still only have a house and a mortgage. As long as people feel like they're ahead, the mandatory payment to the state of a premier's ransom can be dispatched to the ''hey, who cares?'' bin.

But this explanation flies only as long as property values head north. If prices were to go into reverse - as some economists believe they will, and as has already occurred in many developed countries - some Victorians would wind up with houses worth less then their loans. Thirty grand or so lost to stamp duty wouldn't seem so trivial then.

There are additional problems in the way stamp duty is perceived. When public debate flares on the subject, backyard ''experts'' sometimes bob up proffering superficially persuasive theories on why stamp duty might not actually hurt you. Please ignore these people and be in no doubt: when the state relieves you of $28,610, you really are being relieved of $28,610.

Emotional factors involved in property transactions may also contribute to public apathy. In the afterglow of a house purchase, a huge bill for stamp duty might not seem so unconscionable when it turns up some weeks later amid all the excitement of moving in to the new digs.

But I wonder how people would feel if they had to pay stamp duty up front? What if Brumby gave up what he normally does on Saturdays and spent the day showing up at auctions and demanding tens of thousands of dollars on-the-spot from successful bidders? That might focus their minds. And it certainly wouldn't win the Premier any friends.

The case for Brumby to slash stamp duty is not just about fairness to individuals. As property values have soared over the past decade, and as the government has cynically used this to rake in extra billions in stamp duty, the state finances have become dangerously exposed to any reversal in property prices.

In his comments this week hosing down expectations of stamp duty relief, Brumby protested that the state already had a narrow revenue base. ''The question is, how do you pay for it?'' he said.

Let me offer a couple of suggestions. I have written before of a potentially large revenue stream available to any government with the courage to convert suburban freeways into state-owned tollways. The current situation, in which some are tolled and some aren't, is illogical and discriminatory.

Modest tolls on freeways - lower than those on private roads such as CityLink - would be a far more decent, equitable and sustainable way to raise money than preying arbitrarily on gambling addicts and home buyers. The tolls could also act as a congestion tax, perhaps levied at higher rates in peak times. A logical starting point would be to toll the new Frankston bypass.

Another alternative source of cash - admittedly a challenging one politically - could be to persuade the Gillard government to think again on its Henry tax review options and consider a small increase in the main source of state revenue, the GST.

In the meantime, by insisting there are no practical alternatives to his punitive rates of stamp duty, Brumby presents a gift-wrapped political opportunity to his opponent, Ted Baillieu.

The Age . Tom Ormonde . 15/10/10