Industry backs stamp duty phase-out as NSW moves forward

Industry groups roundly agree that stamp duty should be phased out and replaced with a broader land tax, as the New South Wales state government makes progress on its plan to reform its property tax system.

State governments around the country have become increasingly dependent on stamp duty for revenue, despite it being universally recognised as one of the most inefficient and inequitable taxes.

But the debate over any possible change needs needs to focus on the benefits of phasing out the tax rather than how complex the transition to a new system would be, according to Housing Industry Association chief economist Tim Reardon.

Research by the HIA showed a typical stamp duty bill was $21,410, based on a weighted average of the states, with NSW having the biggest bills and Queensland the smallest.

Those costs have doubled over the past two decades, as tax brackets have failed to increase at the same rate as house prices.

The ACT is midway through a transition away from stamp duty towards a broad based land tax, while the NSW government has also begun the process of stamp duty reform.

The HIA recently provided a submission to the NSW state government detailing its position on stamp duty, as the state moves forward on a reform process which will likely give homebuyers the choice between paying stamp duty up front or to pay an annual land tax.

Mr Reardon said there were numerous strategies that could be pursued, including NSW’s proposed opt-in/opt-out arrangement or a phased in approach.

“As with all sound economic reforms, the benefits of the reform ensure that households disadvantaged from the change can be compensated,” Mr Reardon said. 

“The case in favour of reforming stamp duty is so strong that it doesn’t matter which of these options is adopted, as long as stamp duty is abolished. 

“Penalising households for pursuing home ownership does not lead to good economic or social outcomes.”

Mr Reardon said the benefits of removing stamp duty were extensive.

“A workforce able to relocate in the pursuit of education and employment opportunities, without incurring punitive taxes, supports a range of family and community goals,” he said. 

“Households able to move to a home that suits the size of the family and the location of their employment and studies can lead to a more efficient allocation of public investment in transport infrastructure.”

Also supporting the replacement of stamp duty in NSW was the McKell Institute, a not-for-profit research group set up to advance practical policy solutions.

While the McKell Institute acknowledged the introduction of a property tax could place upwards pressure on house prices in the short term, a reduction in stamp duty costs would nonetheless be positive for housing affordability.

McKell Institute policy officer Connor Wherret said in the group’s submission to the NSW government that any change needed to ensure tenants and renters were protected, while home values and rental prices would need to be continually monitored following the introduction of a new scheme.

Mr Wherret said first homeowners would also need additional support if stamp duty was axed, with current concessions to become irrelevant.

The NSW government’s consultation paper on the change proposes short term grants of up to $25,000, in addition to the First Homeowner Grant scheme for new homes, valued at up to $10,000.

Mr Wherret said the likely result of those moves, however, would drive up house prices.

“Sellers will factor in this $35,000 to their market appraisals and sell the properties for that higher price,” Mr Wherret said.

“Ultimately, the only beneficiary from the policies is the seller themselves, contrary to the intent of policymakers and at a considerable cost to government.”

Mr Wherret said a more effective approach would be to provide first-time buyers a discount on their annual property tax.

“Given homeowners are likely to have less equity and larger mortgages, this ongoing relief will provide a greater benefit,” he said.

Urban Taskforce Australia chief executive Tom Forrest also agreed that it was imperative that stamp duty was phased out, with homeowners “punished” for changing their address.

“It is a direct price signal which acts in the opposite direction to the functioning of a market system,” Mr Forrest said.

“It prevents people moving home when they change jobs - hence it results in longer commutes, increased traffic congestion and greater greenhouse gas emissions.”
Mr Forrest said it would be important that any change to a property tax must be locked in to ensure the public was confident that it would not change with each election cycle.

“The proposed property tax will be a much-improved mechanism for the funding of infrastructure,” he said.

“The new tax, by being based on the underlying land value, will increase with the delivery of new publicly-funded infrastructure or rezoning, therefore having a multiplier effect for the funding of future and on-going infrastructure needs.”