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The current stamp duty model has been criticised as being out of date with today’s property market.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 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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