NSW budget stamp duty reforms have been considered a “promising start” and a “necessary step” for the abolition of property tax, but it’s not been met with the fanfare the state government may have hoped.
The reactions come after the release of the NSW state government budget papers, which indicated that community consultation would be entered into in a bid to overhaul the stamp duty system as it stands.
At the time of the announcement, State Treasurer Dominic Perrottet said the potential reform “could bring the great Australian dream of owning your own home one step closer to reality for thousands of people”.
Hours later, the Real Estate Institute of New South Wales (REINSW) expressed its support of the acknowledgement by the state government that reform of the property tax was necessary.
But it stopped short of applauding the proposed new measures — which could see property purchasers given the choice of either paying stamp duty up front or paying a smaller annual property tax — noting that it wouldn’t support the replacement of one property tax with a different property tax.
“While there is no such thing as a good tax, some are better than others,” the REINSW CEO, Tim McKibbin, had stated.
“When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax.”
With the dust settling on the state government announcement, Mr McKibbin has again queried the method of reform, as the REINSW aims to shine a light on “some of the unidentified – or unconsidered – impacts of the proposal”.
“Not least that the announcement could adversely affect the market until an outcome of the proposed reform is known,” the CEO stated.
He said there is a very real risk people who had been actively looking to buy may put plans on hold until they get clarification of how exactly the reform will function.
In the past 24 hours alone, Mr McKibbin revealed REINSW members “have cited numerous examples of purchasers who, as a result of the announcement, now plan to abandon their search for a property in the immediate term”.
“Optimistically, this won’t occur until mid-next year at the earliest. Until then, we run the risk of buyers maintaining a wait-and-see approach.”
While acknowledging that “it is clear that the way property is taxed is in need of reform”, he said “trading one punitive property tax for another is not tax reform as suggested”.
“The industry remains steadfastly against stamp duty but is the option of a land tax really the lesser of two evils?” the CEO questioned.
“At least with stamp duty you pay it once, albeit a large amount. Land tax is an ongoing burden.”
“True reform would result in people not incurring a tax burden for the simple necessity of maintaining a roof over their heads,” he concluded.
Co-ordination called for between states
The Real Estate Institute of Australia (REIA) holds a similar sentiment to the REINSW, noting that itself and all of its members “have been calling on stamp duty reform for years”.
REIA president Adrian Kelly said the payment of large amounts of stamp duty affects property customer decisions regardless of what phase of life they are in.
Weighing in on the New South Wales government stance, Mr Kelly said: “While reforms in the NSW budget may prove to be a promising start, replacing one tax with another does not solve the long-term problem Australia’s property market is facing.”
According to the association, Australian property customers in owner-occupier categories now pay, on average, 4 per cent of the value of their property on government stamp duties.
Mr Kelly is calling on greater government leadership to take away home ownership impediments, as the REIA calls for “a co-ordinated approach to stamp duty reform as the Australian economy emerges from its COVID-19-induced slump”.
The president considers solving the stamp duty problem to be as good for governments as it is for home buyers.
While property transfer stamp duties are the second-largest source of state tax revenue, Mr Kelly conceded they are “a highly volatile tax, with revenue fluctuating by over 50 per cent”.
“We will see this, particularly in Victoria, as the impacts of their prolonged stage 4 lockdown become apparent,” he commented.
“As the Henry Review identified, stamp duties on conveyances are inconsistent with the needs of a modern tax system and should be replaced with a more efficient means of raising revenue.”
Mr Kelly believes that stamp duty reform, while a major exercise, “would have outstanding ‘knock-on’ benefits to the economy and help Australians into the right housing solution for whatever stage they are in their life”.
“It’s time for Australia’s Treasurers to get serious about getting rid of stamp duty,” he concluded.
Would a land tax work?
The University of Sydney’s political economist and Sydney Policy Lab economist-in-residence, Dr Gareth Bryant, has also weighed in on the issue.
From his perspective, a move to a land tax “is generally a fairer and more reliable revenue source for state governments than stamp duty”.
He also recognised that making the change optional for new house purchases “is intended to deal with the difficult politics of land tax on family homes”.
But despite the proposal for reform, Dr Bryant does consider that the government “needs to ensure that the reform is designed in a way that is progressive, doesn’t further inflate house prices, and avoids unintended consequences”.
Rates completely out of date
The Housing Industry Association (HIA) has echoed statements that stamp duty is an inefficient tax and “an unfit-for-purpose” source of state government revenue.
HIA executive director David Bare said the removal “should be a priority for the NSW government”, as the COVID recession “has highlighted all of the weaknesses of stamp duty”.
“It is impeding the ability of the population to shift to pursue education and employment opportunities and it is causing a decline in revenue to state governments just when they need a stable taxation base,” he commented.
Mr Bare has observed that stamp duty bills have increased almost three times faster than house prices since the 1980s. He expects this trend would continue without reform.
Flagging the existence of “stamp duty creep”, the director said stamp duty rates have not seen change since 1985, when the average house cost $70,000.
“In NSW, the typical stamp duty bill increased from 1.6 per cent to 3.8 per cent of the median dwelling price between 1982 and 2017,” Mr Bare said.