Stamp duty on its way out in NSW
Stamp duty on its way out in NSW
One of Australia’s most criticised and inefficient taxes is being overhauled in New South Wales, with property buyers set to be given the choice to opt out of stamp duty and instead pay a smaller annual levy.
NSW Treasurer Dominic Perrottet launched a public consultation process as part of his state budget this week, asking the community for input on the proposed tax reform which would reduce up-front costs for property buyers.
Mr Perrottet said the current system was centuries old and was in need of an overhaul.
“This is the single most important economic reform we can tackle to turn the Australian dream into NSW’s reality,” Mr Perrottet said.
“This is a reform proposal for NSW where more people can own their home and have more freedom to choose the right property for their family at every stage of life.”
As well as giving buyers the choice between paying stamp duty or an annual tax, buyers that opt-in to the system will also have no land tax liability, while current property owners not buying or selling would not be affected by the changes.
Stamp duty concessions on offer for first home buyers would be replaced with a new grant, while the new property tax rate would be designed to support and incentivise home ownership through a lower rate for owner-occupiers as compared to investors.
Mr Perrottett said the model could inject more than $11 billion into the NSW economy over its first four years.
“Reform of the inefficient stamp duty system could also create and support thousands of jobs to boost the economy and kick-start our recovery for a prosperous, post-pandemic NSW,” he said.
The reform could be in place by the second half of 2021.
Industry groups say the reforms are not necessarily going to be as positive as claimed by Mr Perrottet, however, with the property sector still doing the heavy lifting when it comes to NSW state government revenue.
Analysis of NSW government revenue by the Real Estate Institute of NSW shows the state government collected more than $1.8 billion of stamp duty revenue in the three months to the end of September, $235 million up on the same period last year.
REINSW chief executive Tim McKibbin said while the institute was not a supporter of stamp duty, simply switching to an annual tax would do nothing to address the issue that the property sector carries a disproportionate amount of NSW’s tax burden.
“The concept of tax reform, we welcome, and replacing a narrow based unjust tax in stamp duty with land tax on the face of it is an improvement,” Mr McKibbin said.
“However, it is not a broad-based tax from an asset class perspective - it is only on property.
“Our position is that we should be looking at a broad-based tax across a lot of asset classes, so that there isn’t this disincentive to deal in the asset.
“By way of example, it costs you nothing to buy shares and it costs you nothing to hold shares, so buying and selling shares is far more attractive than buying and selling and holding property.
“Unfortunately, a good share portfolio doesn’t put a roof over your head.”
Mr McKibbin told Australian Property Investor Magazine that stamp duty reform was well overdue in NSW, with the current applicable rates not being amended for 32 years.
“In fact, when the last time the stamp duty rates were changed, our current Treasurer was four years old, so that’s how out of date they are,” he said.
“In addition to that, at a more financial level, the median house price 32 years ago was less than $100,000.
“The median house price now in Sydney is now closer to $1 million - it’s 10 times what it was back then, and yet the tax rates haven’t changed.
“The bracket creep has been enormous and the state government has enjoyed the additional revenue quite unjustly and unconscionably.”
Mr McKibbin also raised concerns that the intended effect of improving housing affordability would not be achieved with a stamp duty switch to an annual tax.
“It’s a very short sighted view,” he said.
“What the Treasurer is saying is ‘yes you can get into the property a lot easier than you can now, however, I will tax you here and forever after for holding the property'.
“You’ve got council rates, water rates, strata fees for people in multi-residential developments, garbage charges, and then on top of that again, you are going to have a land tax.
“That is just a further burden that people trying to call somewhere home are going to have to endure.
“Obviously with all of these things it is always going to be the most vulnerable in the community that are going to have to bear the biggest brunt of this.
“The question is then, what happens if somebody is unable to pay the land tax. How do we deal with that?
“Not that I am in any way supporting stamp duty, because I’m not, but stamp duty you pay when you get in, and if you are unable to pay it you don’t get in.
“We are opposed to stamp duty, but as far as land tax being a magic wand that’s going to solve all of these problems, that certainly is not going to happen.
“You will be simply transferring the problem from one area to the next.”
Real Estate Institute of Australia president Adrian Kelly, whose organisation has been lobbying for stamp duty reform for several years, said the NSW commitment to reform should be the first step towards a coordinated, national approach.
Mr Kelly said Australian owner-occupiers were paying an average of 4 per cent of their property’s value in government stamp duties, which have been a key barrier for first homebuyers entering the market, as well as empty nesters and downsizers.
“REIA has previously called on all Governments to come to the table and work through a sensible, customer-centric solution that helps more Australians into homes,” Mr Kelly said.
“While reforms in the NSW Budget may prove to be a promising start, replacing one tax with another does not solve the long-term problem Australia’s property market is facing.”
Mr Kelly’s call for a coordinated approach was echoed by Mr McKibbin, who urged federal and state governments to come together and work out a broader system of tax reform.
“What we should be doing is looking to expand the tax base,” Mr McKibbin said.
“I think that there needs to be some maturity coming into this space - the federal government and the state governments respectively need to get over themselves and they need to sit down, a bit like what’s happened with the National Cabinet, and work out a tax system that is just, spreads the burden, doesn’t deter transactions and is easily administered.”