The NSW government is seeking public consultation over an overhaul of stamp duty in NSW which would see home buyers spared from having to fork out tens of thousands of dollars under a new government plan.
State Treasurer Dominic Perrottet announced as part of the budget that the government wants to replace stamp duty with a new tax to boost the NSW economy. The proposal gives buyers a choice between the status quo of paying stamp duty or an annual tax on land value, similar to the way council rates are applied.
The changes would only apply to future purchases, meaning if you are not buying a property there is no change.
Mr Perrottet said stamp duty was “one of the biggest financial barriers to home ownership” and an overhaul would make home ownership more attainable.
“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,” he said.
“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.”
According to the NSW Treasury, an owner occupier would be potentially pay $500 per year + 0.3 per cent of unimproved land value, while investors would be taxed $1500 annually and 1 per cent of unimproved land value.
First-time buyers who benefit from an exemption on stamp duty on homes purchased for less than $800,000, would instead receive a grant worth up to $25,000 under the proposed overhaul and would pay the new property tax.
At the median Sydney house price of $1.1m, the reform would mean people could avoid paying $46,000 in stamp duty, making them more willing to move, and thus improving productivity and boosting economic growth. Stamp duty is thought to discourage older people from downsizing, creating too much spare housing capacity.
There may be instances where you’re better off sticking to the current stamp duty system. If you plan to stay in your house for a long time and you’ve got a comfortable deposit size at the time of purchase, it may make sense to pay stamp duty instead of an annual tax. It’s important to note that in the government’s current proposal, if a previous owner of a property chooses to opt for the annual tax over stamp duty, the new owner cannot choose to pay stamp duty. This appears to be a way to phase out stamp duty entirely, and replace it with the new annual tax.
Stamp duty collection has traditionally been one of the state’s biggest revenue sources, earning NSW $7.4 billion in the last financial year. But Mr Perrottet said scrapping stamp duty could end up earning the state more money to the tune of $11 billion in the first four years alone.
The impact on property prices is unclear, with some believing that scrapping stamp duty means that purchasers have more money to spend up front, particularly many who have excess borrowing capacity and are only limited by their deposit size in how much they can afford to spend on a property purchase.
Brendan Coates from the Grattan institute believes that “In the long run, a better allocation of the housing stock would lead to lower prices, particularly for larger dwellings,” Coates wrote. “Overall, the average price of housing would fall a little.”
The government will consult with the public before deciding on whether to make the change or not.