Thursday, May 15, 2008

Number crunching

£6.5bn: Revenue raised from residential Stamp Duty last year.

£100m: Government help offered to first time buyers in the next Queen's speech.

PS Is it appropriate for the Government to encourage first time buyers when house prices are starting to fall!?!


Mark Wadsworth said...

Nice try, but SDLT (like all taxes on land or property values) is borne (economically) by the vendor (or landlord), not the purchaser (or tenant).

Think about it, if the law were changed so that the vendor had to pay it (in the same way as the vendor might have to pay CGT if the property is not his main residence), then prices would rise accordingly.

But in reply to your second question, The Goblin King was the man who sold gold at an all-time low, why shouldn't he buy houses (or encourage others to do so) at the peak of the market?

Bag said...

It may be the existing owner that writes the cheque to feed the unsatiable government but the cost is included in the house price and thus paid by the purchaser.

It's the same on the VAT and other taxes on fuel. You pay for it but the supplier writes the cheques. Are you claiming you don't pay fuel taxes as well.

Snafu said...

Mark, I suspect most purchasers would disagree with you! They find the house they want and then have to find additional funds to pay the stamp duty. House prices are quoted excluding stamp duty!

Using your logic, you might as well argue that I do not pay any income tax, it's deducted at source and is therefore paid by my employer!

I think your point is that vendors would keep more of the proceeds of a house sale if purchasers can afford to pay the stamp duty!

Mark Wadsworth said...

Fuel duties and tobacco duties etc is the other way round.

Demand is inelastic, supply is elastic. The basic tax-free price of a packet of fags or a gallon of petrol is the same all over the world. Different governments levy different rates of tax. Thus the tax-inclusive price of the fags or petrol varies greatly from country to country.

With land and property taxes, the reverse applies.

Demand is fairly elastic, but supply is totally inelastic. No matter how high or low prices of house are, it does not (except in the long term) change the quantity supplied.

Thus, when successive governments have experimented with exempting certain areas from Stamp Duty or Business Rates (that are nominally paid by purchaser or tenant), all that happened was that selling prices or commercial rents went up.

There is also a legendary example of a street in London where one side was in a high Council Tax borough, and the other side was in a low Council Tax borough.

Seeing as tenants were indifferent which side of the street they lived on, and were prepared to pay the same total budget (rent plus Council Tax) for living on either side, the rents on the high council tax side were of course slightly lower.

It's basic economics.

The economic incidence of income or corporation tax is far more complicated, but I suspect it is largely borne by the person whose income it is.

xoggoth said...

Those sound like sound points Mark but since you are arguing from market forces maybe you should stick with the argument.

Even if removing stamp duty would not lower the overall cost of a house, at least the money could be spent by the seller to stimulate the economy rather than get directed into public expenditure where the free market, and hence the concept of value for money, does not necessarily apply.

Mark Wadsworth said...

Sure thing, the government wastes at least 20% of tax revenues on, basically, jobs-for-the-boys. But as far as the free market is concerned, 'sin taxes' and 'user charges' are the least bad taxes, I've done a longer essay on this here.