Late last year, NSW Treasurer Dominic Perrottet flagged that he was looking at eliminating inefficient state taxes like stamp duties, to spur growth.
Yesterday he put rhetoric into action, launching a reform that would offer owner-occupiers an alternative to stamp duty via a fixed $500 up-front fee plus an annual tax of 0.3% on unimproved land value. For the average property in NSW, that would equate to around $1,600 in tax annually. But buyers would still have the option of paying stamp duty upfront as a lump sum (currently averaging $34,000).
However, once a property is subject to that annual tax, all future owners must continue to pay it.
The NSW Government will now undertake community consultation until March to seek feedback on the plan.
Prosper Australia, which has been lobbying for land taxes for more than 100 years, has backed the proposal, declaring it a “generational reform”:
This may well be the most important balloon ever floated! Yesterday’s NSW state budget saw Treasurer Dominic Perrotet lean in on the pandemic to usher in generational reform. He boldly opened up to public feedback on the slated proposal to replace stamp duties with a broad-based land tax. The touted tax schedule is proposed as:
Current land tax rates apply only to investors in commercial and residential:
- Threshold one: $734,000 – $2m: $100 plus 1.6 per cent of land value above the threshold.
- Premium threshold: $60,164 plus two per cent of land value above the $4,616,000 threshold.
Property investors will likely have their taxes cut by at least 40% whilst future generations will be saddled with higher public debt. Home buyers are likely to pay less to banks in mortgage interest (reduced stamp duty) while everyone will find it easier to upsize, down size and move closer to work. The financial savings to home buyers may be cancelled out by the higher capitalisation rate – with lower overall property taxes allowing for greater upfront bids. That’s what we have learnt in the ACT.
Supporters can ‘Have their Say’ on the proposed changes by completing this NSW Treasury survey. Your time is now! Read their short discussion paper first. Treasury’s quick poll is currently showing a 70-30 support for the reform.
The Treasurer demonstrates some clever politiking by excluding the wealthiest from the transition. The top 20% of high value properties will not be able to transition, meaning that government receives their large stamp duty payments alongside quietening these typically loud voices. Perrottet is clearly playing to first home buyers, struggling to achieve their ever growing deposit requirements.
This reform is certainly a step in the right direction. We just hope that a 0.3% charge on home owners and a 1% charge on investors will be significant enough to encourage a more appropriate allocation of housing. Lead Second Interval author Warwick Smith is quoted in the AFR recognising investors will be the quickest to respond…
When it comes to inefficiency, you would be hard pressed to find a worst tax than stamp duty on property.
Victoria University recently ranked it as the most inefficient tax:
As did discussion paper on tax:
At the other end of the efficiency spectrum is land taxes, which are highly efficient.
Stamp duties are also linked to the number of property transaction and, therefore, are inherently volatile:
Moreover, because only between 4% and 8% of the housing stock is transacted annually, we have a bizarre situation where a small minority of the population are paying taxes that support services for the whole community – all for the privilege of moving to a home that better suits their needs!
Clearly, there are strong efficiency arguments in shifting from stamp duties to land taxes.
You’ve gotta commend Dominic Perrottet for embarking on such an ambitious reform.