The state government says that proposed stamp duty reforms will improve productivity and leave household incomes better off by over $3,000.
The NSW state government’s proposed stamp duty reforms are not yet a reality, but the latest state budget tells us more about the impact they’re expected to have on the local property market conditions.
Despite accounting for $1.4 billion in annual revenues in 2020, the state government said that existing stamp duty is one of the “principal barriers” to home ownership and that removing the tax will benefit buyers of all stripes.
“It would help to enhance household mobility, allowing more people to choose the right home for themselves and their families at every stage of life, without being penalised by stamp duty,” the budget papers said.
According to the government, one of the issues with the existing stamp duty system is that it hasn’t kept up with Sydney’s roaring property market. As a result, the existing incentives for first home buyers aren’t working effectively.
“Stamp duty was introduced to NSW in 1865, and the system has not kept pace with the changing way people live, work and move,” NSW Treasurer Dominic Perrottet said in the state government’s June 2021 progress update on the reforms.
The NSW state government is now looking at a “phased transition” away from traditional stamp duties, first outlined in November 2020.
Under the new system, property buyers will be able to choose to pay a small annual land tax rather than a larger stamp duty.
In June 2021, the state government indicated an updated rate structure for the new tax would see residential owner-occupiers pay an annual fee of $400 per property plus a 0.3 of a percentage point tax on every dollar that the property is worth over $755,000.
For investors, the annual fee is $1,500 per property but, otherwise, the system will work identically.
As per the latest state budget papers, “over time, the reform could improve housing affordability, increase home ownership by 6 per cent, increase average household income by around $3,300 and create 70,000 additional jobs”.
The NSW state government revealed that 24,000 people have engaged in the consultation process for stamp duty reform so far.
They noted that more than three-quarters of respondents to a government survey believed that the current stamp duty system needs to be changed and that the proposal “resonated particularly strongly” with first home buyers.
With the feedback phase of the proposed reforms slated to end on July 2021, the NSW state government said it will further refine the proposed reform as the process moves forward.
According to Property Council NSW executive director Jane Fitzgerald, “the reform model proposed by the government last year had many strengths and aimed to avoid mistakes of other jurisdictions”.
“The opportunity to remove the stamp duty blight from the NSW tax landscape should be seized, but not at any cost, so it is vital that the final proposal works for both commercial and residential property,” she said.
BDO Australia’s Fady Abi Abdallah said that “removing stamp duty could be a catalyst for movement in the market, resulting in increased supply levels, which would help with momentum”.
“However, there are concerns as to whether the proposed measures will result in increased affordability, particularly in the short to medium term. There is a risk that the reforms could well result in an increase in house prices, thereby reducing affordability,” he said.