The New South Wales Government will deliver its 2021 Budget tomorrow.
The Government had forecast in its half-yearly Budget review in February that stamp duty revenue for 2020-21 would total $8.372 billion. However, the government now expects such revenue to total $9.379 billion, due to Sydney’s soaring residential property market – delivering a financial windfall of $1 billion. The boom has also means that stamp duty is now the state’s largest tax revenue source, overtaking payroll tax.
Treasurer Dominic Perrottet says the surge in stamp duty revenue to the highest level since 2016-17 is “good news” for the state’s economy after the challenges of the last year; although he still favours replacing stamp duty with a land tax:
“It’s good news for the New South Wales budget which is recovering from a very difficult 12 months”…
“It obviously helps providing government services to the people of our state in circumstances where we want the physical position of New South Wales to recover”…
“[But] while stamp duty might be the number one revenue source the New South Wales budget receives… It doesn’t make it good tax”…
“We need to look at better ways of doing things and government’s shouldn’t just rely on rivers of gold from volatile taxes.”
Meanwhile, modelling by Business NSW suggests that it would take the state government almost 50 years to recover the tax revenue lost on some properties if Perrottet’s stamp duty reforms are implemented, prompting further calls on the federal government to subsidise the shortfall:
Business NSW collected data off a small number of properties across the state and modelled the time to recover lost tax revenue, based on last year’s consultation paper.
It then projected payback periods from nine to 45 years for residential owner-occupied properties…
Applying the new rate to a mixed-zoned, $836,000 owner-occupied block in Sydney’s upper north shore suburb of St Ives, which sold for $2.745 million, the government may not recoup the $135,980 in stamp duty for 46 years.
The median unimproved land value in greater Sydney is $843,542 as of May, according to CoreLogic. That would attract a stamp duty of $33,297 or a land tax of $2930.63 per year, with the latter taking the state government 11 years to recoup what they would have gained from the one-off transfer levy.
Business NSW chief executive Daniel Hunter said the federal government needs to step in to help the Berejiklian government deal with the financial hit of reform.
“This reform is definitely worth pursuing – the benefits of reform are substantial,” Mr Hunter said…
Chartered Accountants Australia has already warned the reform could cost the NSW economy $11 billion in four years and would take 50 years to repay.
As shown in the next chart from the Australian Treasury, the abolition of inefficient taxes like stamp duty in favour of efficient land taxes would generate significant productivity benefits to the national economy:
Given the federal government would monetise the majority of these productivity benefits via an uplift in personal and income tax receipts, it stands to reason that it should incentivise state-led productivity enhancing reforms by sharing the financial bounty with states undertaking said reforms.
Doing so would enable the states to share in the revenue uplift that would arise from the resulting economy-wide productivity growth.
State tax reforms will continue to be put in the ‘too hard basket’ if the federal government does not share the financial fruits of reform. In turn, Australia’s overall productivity growth will continue to suffer.
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