Phasing Out Stamp Duty to Cost NSW $2.5bn

Two years after pitching it, the New South Wales government is finally moving to overhaul stamp duty in favour of a broad-based land tax.

The move, to be contained in its budget next week, is aimed at tackling the state’s affordability crisis. 

The reform will put a $2.5-billion hole in the budget according to estimate, which is about 20 per cent of the NSW government’s revenue.

The property industry has applauded the tax reform ,which could help grease the wheel for property transactions into the future.

Urban Taskforce chief executive Tom Forrest said the imposte of stamp duty had forced people to stay in homes that did not meet their needs, which had a ripple effect “forcing the prices up” on homes that were on the market. 

“Stamp duty actively works against transactions,” Forrest said.

“Stamp duty is also levied on the purchaser of a new home … it hits those that can least afford to pay due to the massive increase in homes across Australia, but particularly in NSW cities and regions.

“It is a tax on making homes available for sale and it hits those who have already been hit by the government’s failure to address housing supply and the resultant housing affordability crisis.”

Forrest said the time was right to undertake the tax reform after a paradigm shift in the federal government’s position on assisting the states with the resultant cashflow issue and drop in revenue from stamp duty taxes.

“State governments are addicted to the revenue,” Forrest said.

“The financial difficulty for the NSW Premier and his stamp duty reform aspirations was always an initial drop-off in revenue for a number of years while the transition was being worked through.”

Former treasurer and now Premier Dominic Perrotet has proposed a phased-in approach to introducing the reform, which would protect homeowners who have already paid stamp duty, while offering buyers the choice to opt in for an annual land tax option. 

The Australian Capital Territory is the only other state or territory to successfully overhaul stamp duty.

As part of the NSW phased-in approach, the stamp duty would eventually be phased out as land tax would be tied to individual properties into the future. 

There are, however, provisions for retaining 20 per cent of the most expensive properties in NSW as stamp duty properties to help shore up revenue in the short term.

The NSW Cabinet’s expenditure review committee has reportedly approved a reservation of funding for the changes in the Perrotet government’s pre-election budget next week. 

Newly-annointed Federal Treasurer Jim Chalmers has signalled he is willing to work with the states on a collaborative approach to tackling housing affordability.