When Perrottet first trumpeted his plans in 2019,he spoke about a complete abolition of stamp duty in favour of a broad-based property tax,which would have been the biggest state tax reform in NSW in a generation. But despite lengthy consultations,the model that Perrottet ultimately landed on was significantly watered down. Resembling more a trial than a reform,Perrottet’s policy is,for now,quarantined to first home buyers.
People wanting to enter the property market would have the option of paying an annual tax rather than a one-off stamp duty on homes worth up to $1.5 million. First home buyers who opt in would pay an annual levy of $400 and a 0.3 per cent tax on the value of their land in exchange for avoiding what is often a crippling upfront impost. Annual increases to payment rates would be capped at 4 per cent in a bid to stop bill shock.
According to thegovernment’s calculator,an $830,000 apartment with a land value of $265,000 would cost a first homeowner $32,440 in upfront stamp duty,or about $1195 in the first year of annual property tax repayments. A $1.35 million home with a land value of $810,000 would attract $58,450 in upfront stamp duty,or $2,830 in the first year of property tax.
Labor has labelled the land tax a “forever tax on the family home”. However,the government has designed the scheme so that a property would not be locked into the tax choice once it is sold. The new owners,if not first home buyers,would have to pay stamp duty. If they too were first home buyers,they could opt for either the land tax or stamp duty.
NSW Treasury data shows half of all owner-occupiers sell their home within 10.5 years,while first home buyers are likely to sell sooner as their circumstances change,such as having children. Treasury officials also estimate 6500 first home buyers a year would take up the land tax option,a small number in the scheme of things. But enough for Labor to want to make it an election issue.
Billed as a housing affordability measure,Labor is adamant that Perrottet’s plan will have the opposite effect. “Even economists sympathetic to a land tax acknowledge that property prices are more likely to rise than fall if Mr Perrottet pushes ahead with his plan,” Mookhey says. “Had Mr Perrottet’s land tax operated since 2015,a homeowner’s tax bill would already have risen by almost twice as fast as their wages.” Mookhey pointed to a statement released from the Real Estate Institute of Australia,which labelled Perrottet’s plans as “absurd”.
“To make something more affordable,government should apply less tax to it,not replace one bad
tax with another,” the institute’s chief executive Tim McKibbin says. “Excessive taxation not only inhibits purchasers,it inhibits supply,and today’s market is the result of decades of inertia when it comes to property taxation reform.”
Despite its staunch opposition,Labor is yet to reveal its plans for stamp duty or housing affordability,although Minns gave a hint earlier in the week. “I’m more interested in ensuring first home buyers pay no tax rather than a new tax. This is a new tax forever on a family home. So we’ll have more to say as we get closer to the NSW election,but we will make sure our policy proposals go up against the NSW government,” Minns said.
He would not be drawn on Labor’s policy plans,although Moohkey has indicated it would be more likely to pursue additional concessions and exemptions for first home buyers. (Stamp duty concessions already apply to properties valued at up to $800,000,while a property of up to $650,000 does not attract any stamp duty at all).
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In one of its first uses of the Parliamentary Budget Office,which started operation this week to cost election promises,Labor has sent several stamp duty-related options for costing ahead of making an announcement. “I’m not going to hypothesise about our policies. We’ve got every right to develop them and release them on a timetable. But I do give a commitment that we will release that well in advance in the next election,” Minns says.
Labor says it cannot see how the government will afford Perrottet’s tax changes,which are budgeted to cost $775 million over the next four years. At the same time,Kean seized on Minns’ eagerness to have first homeowners pay no tax. “They’re creating an enormous black hole – by their own logic. This is all politics just to deny first home buyers a choice,” Kean says.
Stamp duty reform is a big test for Perrottet. Where he sees legacy,Labor has identified political opportunity,and the question will be whether the Premier’s ambition for reform will ultimately expose his government a costly scare campaign in a tight election race.
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