The spectacular investor-driven Sydney property bubble has been well documented on this blog, with home prices there rising by more than 30% in less than two years, according to RP Data (see next chart).
This surge in housing prices has, of course, been driven by an unprecedented orgy of investor speculation, whose share of total finance commitments (excluding refinancings) hit a record 58.2% in the year to January, with no end in sight (see next chart).
Arguably, the biggest beneficiary of the spectacular Sydney property bubble is the Liberal State Government, which has enjoyed a massive escalation in stamp duty receipts. These have risen by more than 53% over the past 18-months to $5.4 billion in the year to February, on the back of a 21% rise in transaction volumes and the above price escalation (see next chart).
As noted previously, this surge of stamp duty receipts drove a massive reversal in New South Wales Budget forecasts, with the Half-Yearly Review for 2014-15 recording a massive turnaround of $555 million, from a forecast deficit of $283 million to a revised surplus of $272 million, with larger surpluses forecast over the forward estimates:
In announcing the result, New South Wales Treasurer, Andrew Constance, said that “while the Australian economy is facing its challenges, NSW is riding a wave of prosperity built on the tough choices we made on coming to government. We now control the budget. It doesn’t control us”.
The reality, of course, is that the massive boom in stamp duty drove the Budget improvement, which was due entirely to good luck rather than good economic management.
Regardless, the surge in stamp duty receipts could not have come at a better time for the Liberal Government, which will go to the polls on Saturday week, and will likely win another term due to its ‘superior economic management’ [sarc/].
Whoever wins office should enjoy the ride while it can. As shown in the next chart, stamp duty is an inherently volatile source of revenue, and looks to have already peaked, which is a bad omen for future New South Wales Budgets and and the forecast surpluses.
The inevitable downturn will just as likely wreak havoc on the state’s finances.
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