NSW Premier Dominic Perrottet is running out of time to make reality a major reform he’s been talking about for years. Perrottet was the state’s treasurer when he first announced his intention to replace stamp duty — a fee demanded of home buyers at the point of transaction — with a property tax.
It’s a major and complex undertaking, not least because it involves tinkering with a major income source for the government.
Across Australia, local and state governments derived more than a fifth of their tax revenue in the 2020-21 financial year from stamp duty.
The $23.9 billion in revenue collected by those governments was a 25% yearly jump to a new historic high, according to the most recent figures from the Bureau of Statistics (ABS).
The premier finally introduced his bill to reform the stamp duty system on Wednesday, and the complexity of the issue was made immediately apparent — including by the fact that the policy has been watered down significantly compared with what Perrottet suggested two years ago.
In Perrottet’s original pitch, any home buyer would have been able to choose between paying stamp duty or a land tax — and if the choice was the latter, the home would be subject to that tax going forward.
This week’s bill proposes a far narrower approach, giving first-home buyers the option of paying the tax instead of stamp duty, but only if the property is worth less than $1.5 million.
AMP Capital chief economist Shane Oliver said the government likely opted for the narrower option because it was cheaper.
“If you have a $1.2 million property in NSW, the stamp duty is going to be something like $50,000,” Oliver told Crikey.
“Whereas the land tax in the same year would be something like $2600. The land tax would be forever, and eventually should equate the value of the stamp duty.
“But in the first year, the government misses out on $50,000 in revenue and replaces it with $2600, and it obviously becomes a big issue.”
Oliver said the approach initially proposed by Perrottet was in his opinion the “ideal way”, and is the path that’s being eyed in other places, including the ACT.
One reason Oliver thinks the new approach is worse is because it doesn’t incentivise “empty nesters”, whose kids have flown the coop, to vacate their big homes to make way for younger families.
Those people wouldn’t be able to take advantage of the new reform if they thought of downsizing because they wouldn’t be first-home buyers.
“They’ll still have to pay this massive stamp duty cost and that’s seen as a hurdle to moving,” Oliver said.
Perrottet has promoted his bill as a way to allow more people to enter the property market.
“For many people, choosing the annual property fee won’t just remove one of the biggest up-front barriers to buying a home — it will also mean a significant tax saving if they go on to sell their first home in the short-to-medium term to meet the needs of a growing family or a job in a new location,” he wrote in an opinion piece for The Sydney Morning Herald earlier in the week.
Perrottet’s bill won’t pass easily. Labor has strongly opposed the legislation, labelling it a “forever tax” on homes, with plans to make the reform an election issue in March.
Still, the government, which is in minority, has a good chance of passing the legislation through the lower house with the support of the crossbench.
Independent MPs Alex Greenwich and Greg Piper both told Crikey they would back it when it comes to a vote, which is likely to be next week.
Even still, upper house MPs are seeking to put the bill through an inquiry before voting on it, which would mean another delay.
Upper house crossbenchers, including MPs from the Greens, Animal Justice Party and the Shooters, Fishers and Farmers Party, all told Crikey on Thursday morning they believed the bill would head to a committee.
Labor doesn’t want it to go to a committee, wishing instead to simply vote it down. But upper house MPs from the party acknowledged it was likely they wouldn’t get their way.
If it goes to a committee, that will make it difficult for Perrottet’s government to live up to the promise of having the reform in place by January.
What do you think of Perrottet’s stamp duty plan? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
