Economists have warned the remarkable $10 billion stamp duty windfall that bolstered Victoria’s budget position this year will not last and that some of the state Treasury’s economic forecasts seem “optimistic”.
Analysts from UBS investment bank are sceptical of the projections of Victoria’s economic growth in the state budget handed down by Treasurer Tim Pallas on Tuesday and say the vital stamp duty revenue stream is likely to decline instead of increasing as the budget papers indicate.
The bank warns of “downside risks” to the property taxes – with land tax another big earner – that state governments have become heavily reliant on,as the nation’s real estate boom cools and interest rates rise.
Economists from ANZ bank also issued a briefing note about the budget on Wednesday,taking a more upbeat view than their UBS counterparts. The ANZ analysts predict the state’s employment performance would beat the government’s projections.
Pallas spoke on Tuesday of being “often pleasantly surprised” by the recovery of Victoria’s economy and budget from the COVID-19 crisis and Treasury planners have twice had to revise this year’s stamp duty forecasts upward as property prices surged and sales volumes soared.
Last year’s budget forecast that $6.7 billion would flow into the state’s coffers through the tax,but revised the projection up to $7.6 billion in December’s mid-year update and now believe that nearly $10.2 billion will be raised by the end of June.
Stamp duty revenue is then projected to drop sharply in 2022-2023 as the property market continues to cool before returning to a growth trajectory – 2 per cent a year for the following three years – although Treasury has noted volatility risks from movements in the market.
But the UBS team,led by the bank’s chief economist George Tharenou,is more convinced by the forecasts of NSW Treasury,which believes its stamp duty revenue – also forecast to spike this year – will steadily decline over the four-year outlook.
“The recent softening in both dwelling prices and volumes in April,before the impact of looming RBA rate hikes,suggests downside risks for property-related tax revenues,” the UBS team wrote.