NSW Treasurer, Dominic Perrottet, has outlined major reform to property taxes in his 2020 Budget announcement.
The proposed change, which would see stamp duty replaced by an annual property tax, is part of a range of stimulus measures aimed at bolstering the NSW economy. It is expected to deliver around $11 billion to the state’s economy over the next four years.1
What is the problem with stamp duty?
The current stamp duty model has been criticised as being out of date with today’s property market.
When stamp duty was first introduced in 1865, it had a maximum rate of just 0.5%.2 Today, the average NSW home attracts around $34,000 in stamp duty costs, adding around two and a half years to the time it takes to save for a home.2 In Sydney, a property purchase of $1.15m (Sydney’s median house price) attracts a stamp duty cost of over $48,000, or around 4.2%.
Stamp duty increases in line with the price of the property. However, over the past 20 years, housing price growth has outstripped inflation and stamp duty costs have become prohibitive for many, particularly first home buyers. The system also reduces property turnover, since it is a major disincentive for homeowners considering moving to a new home.
Stamp duty is also problematic from the government’s point of view, as income from the tax is highly volatile and changes significantly according to the strength of the property market.
How will the new tax affect home buyers?
Mr Perrottet says the primary aim of the new system is to make home ownership more achievable.
Under the current proposal:
- The new tax would comprise a fixed amount plus a percentage of the unimproved land value of the property, paid annually.
- Home buyers would have the option of paying a larger upfront sum (similar to stamp duty) or paying the annual property tax.
- Once a property is subject to the property tax, subsequent owners would not be able to opt for the lump sum option.
- First home buyers currently eligible for stamp duty concessions would receive a $25,000 grant.
- Existing homeowners who have already paid stamp duty, would not be subject to the annual property tax on their property..
The proposed model will be open for community consultation until March 2021, but this announcement should come as exciting news for prospective buyers.
SOURCES: 1www.budget.nsw.gov.au, 2www.australianpropertyjournal.com.au/2020/11/17/nsw-to-scrap-stamp-duty-and-land-tax
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