'Netflix of property tax' could replace stamp duty in NSW
New South Wales (NSW) residents could soon be free of compulsory stamp duty, after NSW Treasurer Dominic Perrottet proposed a move away from it in favour of a land tax.
The proposed changes, announced as part of the 2020-21 state budget and open for public feedback until March next year, would give homeowners the option of either paying stamp duty upfront or paying a smaller annual land tax. The rates would differ depending on whether you're an owner-occupier or investor.
Homeowners would not be double taxed - if you've already paid stamp duty, you won't be up for the land tax.
"This is the single most important economic reform we can tackle to turn the Australian dream into NSW's reality," says Perrottet.
"This is a reform proposal for NSW where more people can own their home and have more freedom to choose the right property for their family at every stage of life.
"This is a vision for every person and family in NSW - from first home buyers trying to get a foot on the property ladder, to frontline workers moving to service our regional communities, and retirees who are ready to downsize."
Speaking to reporters yesterday, Perrottet said first homeowners were spending two and a half years saving for stamp duty compared to a year back in the 1990s.
The rate of stamp duty in NSW is currently 4%. For a first homeowner purchasing a property worth $600,000, they have to pay $24,000 in stamp duty.
"Stamp duty is a tax from a bygone era," Mr Perrottet said.
"This will be like the Netflix of property tax."
The move has the backing of leading economists.
"Stamp duty is a horrible tax because it adds a huge impost to the purchase of a property, adds to poor housing affordability and distorts decisions as to where to spend or invest," says AMP Capital chief economist Shane Oliver.
"And it leaves states overly dependent on property booms for revenue which then is highly cyclical.
"A land tax levied at a very low rate (to ultimately raise the same revenue as stamp duty) would be far preferable. But the transition should be phased in over time so as not to penalise recent buyers of property."
But will the changes really work to increase affordability?
According to CoreLogic, the discounts provided by incentives that lower the upfront cost of buying property end up being offset by higher levels of demand and thus prices.
"However, prices may be affected by the consideration of an ongoing, annual land tax to be serviced on residential property, which could at least reduce upfront costs," says Eliza Owen from CoreLogic.
"This could incentivise more first home buyers into the property market."