The New South Wales government has proposed a shift away from stamp duty in favour of an annual property tax as part of plans to create a more modern tax system.
The plans announced in the 2020-21 NSW budget propose a model that gives buyers the choice of paying either stamp duty and land tax or a new smaller annual property tax in a bid to stabilise state revenue.
The model gives lower rates for owner-occupiers and higher rates for investors and commercial properties.
It will also enable people who opt-in to the system to eliminate any land tax liability while those who have already purchased a property will be unaffected.
The reform could be set in motion in the second half of 2021 following a public consultation process.
The plan leverages the NSW Productivity Commission’s Green Paper and the NSW Review of Federal Financial Relations which suggested several ways to reform the tax system.
NSW treasurer Dominic Perrottet said these changes will improve the state’s economy and help home buyers as stamp duty adds $34,000 to the average home.
“This model may inject more than $11 billion into the NSW economy in the first four years and boost NSW Gross State Product by 1.7 per cent over the long term,” Perrottet said.
“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.”
Urban Development Institute of Australia (NSW) chief executive Steve Mann raised concerns that the plan could see potential homebuyers holding off on their purchase until changes are introduced.
“With commencements in the NSW apartments sector down 35 per cent since December 2018, the government will need to consider stimulatory measures for new construction while this reform is in process, and further incentives which make new builds more competitive in the market.
“UDIA NSW believes this measure, which is initially proposed for owner-occupiers, should be extended to the investor market to stimulate jobs growth in the development sector,” Mann said.
“The number of investors in the property market has halved since the start of 2018.”
Real Estate Institute of NSW chief executive Tim McKibbin added stamp duty reform has been long overdue, however the property industry body does not support replacing one tax with another.
“Stamp duty is an inefficient, inequitable tax that distorts market activity.
“Not only does it discourage people from moving—especially downsizers who would otherwise free up housing stock—it also limits the additional expenditure home buyers could otherwise engage in,” McKibbin said.