Last year, the NSW Government announced that it would abolish stamp duty in favour of land taxes. But after intense lobbying from vested interests and concerns around short-term revenue impacts, it looked as if the NSW Government had abandoned reform.
Yesterday, NSW Premier Dominic Perrottet confirmed that its “game changer” stamp duty reform was still on the agenda, announcing that he would introduce legislation into parliament this week.
The plan would allow first-home buyers to pay an annual land tax (i.e. $400 plus 0.3% of the unimproved land value) rather than stamp duty, and represents a scaled-down version of the original proposal outlined by Perrottet. Along with being optional, it will only be available to first-home buyers on properties of up to $1.5 million.
Experts note that it fails to address one of the biggest problems with stamp duty, namely the disincentive it provides for empty nesters wanting to downsize:
“It’s certainly a good idea, but it’s more limited than I would’ve hoped,” said AMP Capital’s chief economist, Dr Shane Oliver.
“Stamp duty is a very bad tax because it distorts decision making in a bad way. If you are an empty-nester who wants to downsize there’s an obvious disincentive to do that in stamp duty you have to pay.
“Offering it to first home buyers is a step in the right direction but they promised us a revolution and it’s come a lot more vanilla.”
The government has said the policy will cost $775m over four years, a key reason that it has backed away from a full-scale overhaul that Perrottet had championed.
But the policy will help first home buyers, according to CoreLogic’s head of research, Tim Lawless.
“We know that saving for a deposit is one of the biggest barriers to owning a home so a broad land tax that eases some of the upfront cost is removing a significant hurdle to entering the marketplace,” he said.
In Blacktown, where the median house price is $921,000, one three-bedroom home now listed for sale would attract a stamp duty fee of $36,715, if bought for between $900,000 and $950,000.
On current values, the annual tax would be $1,870.
Labor said it will oppose the “forever tax”, meaning the government will need the support of the crossbench in the upper house. This could pose a problem since there is only five sitting weeks until parliament rises before the next election in March.
Stamp duty is considered one of the most inefficient and inequitable taxes, whereas land taxes are both highly efficient and equitable.
But the upfront fiscal costs of switching are large, with the payoffs delayed well into the future. This makes reform difficult for politicians focused on the here and now.
While watered down, you have to commend Dominic Perrottet for taking the high road and forging ahead with difficult reform in the face of stiff opposition.
