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The New South Wales government has announced its plan to change stamp duty for the first time in 30 years, but its impact on property in Australia’s most populated market is up in the air at the moment.
New South Wales Treasurer Dominic Perrottet announced on Monday that the state government intends to index stamp duty to the Consumer Price Index starting 1 July 2019, labelling the reform “first in a generation”.
“We haven’t seen any significant action on stamp duty brackets since 1986 when the median house price in Sydney was $100,000; now it has climbed to $1 million,” Mr Perrottet said.
“Whether you are a first home buyer, a downsizer or upgrading to the family home, you will ultimately benefit as a result of this reform.
“Pegging stamp duty to CPI will reduce the tax burden on home buyers, allowing them to put more money towards a deposit.”
Speaking to REB sister title Smart Property Investment, Tim McKibbin, CEO of the Real Estate Institute of New South Wales, said there’s some good in the announced reform, but ultimately the changes to stamp duty are not enough, he noted.
“The median house price in 1986 was nothing like it is now, and that is what’s wrong with the current tax brackets,” Mr McKibbin said.
“When the Treasurer says that he’s going to index the current brackets, that’s good, but really, what should be going on is they… should be going back to 1986 and indexing it from there to make it appropriate.
“This announcement by the Treasurer is all smoke and mirrors.”
As for how these reforms will actually impact the Sydney property market, Mr McKibbin simply stated “nothing will change”.
“It doesn’t start until July next year, so as for a positive impact on the property market, it isn’t going to have any impact in reality than what is currently there,” the CEO said.
According to Sydney Morning Herald, the reforms are expected to cost the state budget about $185 million, but Mr McKibbin said that this figure was insignificant compared to the total collected by stamp duty, which he put at over $8 billion.
Instead of indexing stamp duty, Mr McKibbin suggested for the government to lower the rate, as he predicted it would increase the number of properties sold, generating more revenue for the government and likened it to a sale at a store.
“You drop the price of an item a bit, so your margins, your profit if you will, drops a little, but you sell a great deal more product, and as a consequence of that strategy, you make more money.
“Now that’s what would happen with the property market.”
Other industry bodies were more welcoming towards the reform, with Housing Industry Association principal economist Tim Reardon labelling it “a step forward in reducing the taxation imposts on housing”.
“State governments have become increasingly reliant on stamp duty from housing as a main source of revenue,” the principal economist said.
“Around $1 in every $5 of state government revenue comes from stamp duty on houses.
“The announcement by the NSW government to address bracket creep for the first time in over 30 years is a meaningful contribution to ensuring that the impost of stamp duty does not continue to grow.”
Mr Reardon called stamp duty as an “inefficient tax” that slugs households hard, while also subjecting government budgets to significant volatility as house prices rise and fall.
Jane Fitzgerald of the Property Council of Australia noted that stamp duty adds “almost $50,000 to the purchase [costs] of the average property in Sydney”, and so any move to reduce this burden is a welcome one.
“Stamp duty is a handbrake on transaction activity and locks people into housing which is not appropriate for their needs,” Ms Fitzgerald said.
“Implementing structural changes to the stamp duty framework is a great long-term investment in providing more affordable housing.”
She called on Mr Perrottet to address the burden of stamp duties further by adjusting the rates themselves to “realign” them with the higher cost of property.
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