THE New South Wales government says it is making the “most significant reform in a generation” to the controversial stamp duty regime by indexing the tax to inflation.
From July 1, 2019, the seven stamp duty tax brackets will move in line with the consumer price index, saving an average property buyer $500 to begin with. That benefit will increase over time.
It won’t make much of a dent in the overall bill, however. A person buying an $800,000 house in Sydney would currently pay $31,490 in stamp duty to the state government.
Treasurer Dominic Perrottet said the current system had remained largely unchanged for more than 30 years.
“We haven’t seen any significant action on stamp duty brackets since 1986 when the median house price in Sydney was $100,000, now it has climbed to $1 million,” he said in a statement.
“Whether you are a first homebuyer, a downsizer or upgrading to the family home you will ultimately benefit as a result of this reform. Pegging stamp duty to CPI will reduce the tax burden on homebuyers allowing them to put more money towards a deposit.”
NSW Treasury said that between 2002 and 2017, bracket creep had resulted in the average rate of stamp duty payable increasing from 3.37 per cent to 4.05 per cent as the median house price in Sydney rose from around $400,000 to $1 million.
It calculates that if stamp duty brackets had been indexed to CPI 15 years ago, the amount payable on a $500,000 home would today be around $2000 lower and on a $1.5 million home it would be $6400 lower.
“Thanks to a strong NSW budget we are delivering consistent and genuine reform after being left to pick up the pieces following years of disastrous economic management under Labor,” Mr Perrottet said.
“The Liberal and Nationals Government is committed to addressing housing affordability, cutting taxes and easing the cost of living pressures for the people of NSW.”
Under a package of concessions introduced last year, first homebuyers in NSW are already exempt from paying stamp duty on properties valued under $650,000 and pay discounted stamp duty on properties valued under $800,000.
“This reform is just another example of us delivering on our promise and combined with the introduction of new first homebuyer concessions it is now becoming easier for people to realise the dream of owning a home,” Mr Perrottet said.
Housing Industry Association principal economist Tim Reardon said despite the initially small benefit it was an “important step forward”. “Credit where credit’s due, this is a significant step,” he said.
“In terms of the quantum, this doesn’t ease the affordability problem but it does restrict the rate at which stamp duty is going to make the affordability problem worse in the future.”
Around one in every five dollars of state government revenue comes from stamp duty on houses. “The NSW government is very dependent on stamp duty,” Mr Reardon said.
“Moving away to other, more efficient taxes should be a long-term goal and the indexation of bracket creep is a first step towards reducing that dependence.”
Mr Reardon said state governments around the country should look to the Australian Capital Territory, which is about six years into a 20-year plan to gradually abolish stamp duty altogether.
“Long-term all states should be looking to abolish stamp duty, it’s an inefficient tax that falls disproportionately on vulnerable people that are required to move for unemployment or health reasons,” he said.
A 2016 report by the McKell Institute argued stamp duty should be replaced with a “simpler, fairer” annual land tax.