NSW stamp duty vs. property tax: What are the proposed changes and how could they affect you
They are the two little words home buyers have hated having to swallow for generations – stamp duty.
Within days of a proposal by the NSW Government to scrap the unpopular tax, property industry insiders have been quick to point out the pros – and the cons – of an alternative.
Will the proposed stamp duty tax changes be better for you in the long run?
What’s the reasoning behind the proposal?
Because the State Government knows that stamp duty (which in recent years seems to have had a brand identity change to ‘transfer duty’ in government documents) is a much despised tax. Often used as a political hot potato at election time, the hefty fee is considered to be antiquated and inefficient.
However, it did put $7.4 million in the NSW Government coffers over the last financial year so something needs to replace it.
The proposal – which is still just that – would see stamp duty phased out and be replaced with a new ongoing tax to boost the NSW economy.
State Treasurer Dominic Perrottet’s plan would see buyers have a choice between the status quo of paying stamp duty or a smaller annual tax on land value.
The shift would lessen the financial barrier for buyers to get into a home, but it would also give the government a more reliable revenue stream. After a year of volatile housing market activity, NSW is set to make less on stamp duty than it usually averages annually, hence the need for reform.
“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,” Mr Perrottet said.
The NSW Government intends to consult concerning this proposal until March 2021.
State Treasurer Dominic Perrottet’s plan would see buyers have a choice between the status quo of paying stamp duty or a smaller annual tax on land value. (Dean Lewins/via NCA NewsWire)
How much you pay, depends on how long you stay
Steve Mickenbecker, Canstar Group executive of financial services, says moving to a land tax system could be a win for buyers who saw stamp duty as yet another barrier to get on the property ladder.
“Land tax is less likely to distort householders’ choices than the large one-off stamp duty charge at the time of purchase, and should result in more efficient housing allocation in the longer term,” he said.
“With no tax tied to a buy-sell transaction, it could mean earlier entry by first-home buyers, and less inhibition of empty-nesters to downsize and families to upgrade to meet growing life stage needs,” he added.
“Canstar research shows that households who relocate in relatively short time frames will be better off with land tax, while householders who stay in place for more than 14 years will pay more,” he explained.
NSW stamp duty compared to land tax. Data: Canstar
A two-tiered market could emerge
Some properties could come to the market burdened with an ongoing tax, while others will not, said First National Real Estate’s chief executive, Ray Ellis.
“The proposal would create a two-tier property market, potentially introducing complications that could make some properties less saleable than others,” he explained.
“If a buyer elects to pay an annual property tax instead of one-off stamp duty, all subsequent purchasers of the property will be forced to pay annual land tax,” Mr Ellis added.
“This would have the potential to make properties locked into an annual tax regime less attractive to downsizers and buyers with the capital and intention to stay for the long term.”
Mr Ellis said the upside of the proposed reform meant benefits to employment and gross domestic product as labour mobility would potentially be improved when the disincentive of moving created by stamp duty is removed.
“Some also consider that larger homes – occupied by asset rich/cash poor retirees – that are needed by younger families are kept out of the market (and are inefficiently used) because retirees are discouraged from downsizing due to the stamp duty they’ll need to pay on their next purchase,” he said.
Some experts predict this change would cause properties to come to the market burdened with an ongoing tax, while others will not.
Buyers might hit the pause button
Tim McKibbin, REINSW CEO, said the announcement has the potential of adversely affecting the housing market for months.
“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,” he said.
Mr McKibbin said the NSW Government has always maintained that reducing stamp duty would push house prices up, simply because purchasers would have more money to spend.
“Hypothetically, if Government’s assumption is correct, the impact on prices will be interesting to monitor, because house prices are determined not by vendors but by purchasers in competition.
“These purchasers will have finance available, which otherwise would have been put towards stamp duty, but which instead can be used to compete on acquisition price. So, if the hypothesis is correct, purchasers will not save any money, but will be burdened with land tax for life,” he said.
“While removing a tax is always welcomed, can the community be confident that once land tax is established and part of our accepted taxation environment, that Government will not reintroduce stamp duty?” he added.
Other states of Australia will wait to see what these proposed changes could do to the market. Photo by Andrew Seymour.
The rest of Australia looks on
Nationally, other states and territories could follow in the footsteps of NSW according to the Real Estate Institute of Australia (REIA) which has called for a co-ordinated approach to the reform.
REIA President Mr Adrian Kelly said with owner-occupiers now paying on average 4 per cent of their entire property value on stamp duties, there should be greater government leadership to remove impediments to home ownership.
“The payment of large amounts of stamp duty affects property customer’s decisions regardless of what phase of life they are in. Stamp duty removal is particularly imperative for first-home buyers as well as empty nesters and downsizers. We need to make better use of our existing housing stock,” he said.
NSW State Treasurer Dominic Perrotet’s plan to scrap Stamp Duty in favour of a Land Tax. Artwork by Terry Pontikos
“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,” Mr Kelly said.
“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 said.
Originally published by realestate.com.au
22 November 2020
