The New South Wales government’s latest budget outlines proposed changes to stamp duty, in a bid to give the economy a boost — and one economist says leaders across the rest of the country will be watching closely.
The proposed changes would give home buyers the choice of either paying stamp duty up-front, or opting for a much lower annual property tax — a fixed amount applied to the unimproved land value.
But, once a property is subject to the tax, any subsequent owners must continue to pay. That is, they can’t opt back into the one-off stamp duty payment.
That caveat means this may be the beginning of a phase-out of stamp duty altogether.
For first-home buyers, who currently enjoy stamp duty concessions for properties valued up to $800,000, the state government proposes grants of up to $25,000, either to put towards the new property tax, or for home improvements.
The proposed measure is designed to make it easier for NSW residents to buy a new home, or to get onto the property ladder.
But, it’s also billed as something that could help the state emerge from the COVID-19 slump, injecting some $11 billion into the economy within the next four years.
In his budget speech, NSW Treasurer Dominic Perrottet said tax reform holds the “greatest potential to unlock posterity”.
He ballasted stamp duty as a “relic from a bygone era” that is holding the economy back “when we need to be going full throttle”.
Moving away from stamp duty in favour of an alternative property tax “would be an important step towards a tax system that propels the NSW economy forward”, he added.
“And when NSW goes well, Australia goes well.”
Speaking to SmartCompany, NAB Group chief economist Alan Oster describes the consultation is “the first step” towards scrapping stamp duty altogether. And from an economic point of view, this is a welcome development.
It will allow for more mobility, particularly among low- and middle-income earners, he says.
That movement will also have an effect on other industries — real estate and the property sector, for example, will be an obvious beneficiary.
However, Oster says that we shouldn’t hold our breath for anything to come into effect immediately. The public consultation is open until March, so we likely won’t see any change until mid-2021, at the earliest.
Still, the timing is interesting, Oster notes.
The NSW budget — like all state budgets, and October’s federal budget — comes during the ongoing COVID-19 crisis, which has seen industries shut down and left the economy in tatters.
Stamp duty “tends to be procyclical,” he explains.
“You get lots of money when the economy is doing well and you probably don’t need it. You get very little money if the economy is doing poorly,” he adds.
So, while the effect of the change will likely be neutral, in the long run, implementing it could be quite pricey.
It’s a common view that a change like this is best suited for a time when the economy is strong, and can take the hit, Oster says. The NSW government has taken the opposite view.
“We’re going to have a lot of deficit anyway, so who cares?” he explains.
This move away from stamp duty has been on the cards for some time in NSW, and Oster suggests it could have flow-on effects all over the country.
“I think all the governments will be watching it,” he says.
“I suspect once they get it up and running, there will be a lot of pressure to implement something similar.”
A public consultation on the new proposition is open now, and accepting submissions until March 15, 2021.