Stamp duty has long been disliked by economists as it is a tax on moving house. The NSW government had hoped to offer all buyers the choice between upfront stamp duty or a smaller annual land tax,making it easier for home owners to upgrade to a bigger home,downsize to a smaller one,or move closer to a new job.
Buyers will be able to choose land tax over stamp duty - but only on their first home.Flavio Brancaleone
But losing stamp duty revenue would be a short-term hit to the state budget and instead the government opted for a more modest change that allows only first home buyers to opt out of stamp duty,.
Once someone owns their first home,they would still face stamp duty on their second,which discourages moving,Grattan Institute economic policy program director Brendan Coates said.
“It looks less like a tax reform and more like just another support for first home buyers,because it doesn’t actually really start the transition,” Coates said.
“The big economic costs of stamp duty are about whether you go and buy again and move again. That’s the point at which people’s housing choices are constrained because they don’t want to pay stamp duty on the second property.”
But Coates said it would improve home ownership rates by reducing the deposit hurdle and help some people to buy a home sooner,although it would also marginally increase prices.
He said more substantial changes would have needed some financial support from the federal government.
Domain figures show buyers who plan to move again in the medium term would save money by choosing land tax over stamp duty.
Someone who bought a $1 million home could pay land tax for 16 years before equalling the amount they would have spent on stamp duty. A buyer at $1.5 million would take 18 years.
Barrenjoey senior economist Johnathan McMenamin labelled the plan “reform-ish”.
“It is definitely a more watered-down version,” he said. “By limiting it to the first home buyer group in particular,it makes it a much weaker policy overall.”
He said it would reduce the time to save a deposit on the median home by about three years and also enable some buyers to borrow more money,which could put upward pressure on prices for properties under the $1.5 million cap. This boost could also encourage some owners in this price bracket to sell,although he cautioned there would also be a dampening effect on property prices from rising interest rates.
“It’s not going to bring the benefits of what the initial policy would have,which would have been to boost supply from those upgraders and downsizers,because ‘now I can move,because I don’t have to be faced with this tax on movement’.”
More affordable homes are still eligible for stamp duty exemptions or concessions.Peter Rae
He said the plan was a stepping stone to a larger reform that could help the public get used to the idea of land tax and put more pressure on the federal government to help with the transition.
Independent economist Saul Eslake said the impact of the stamp duty change would be small as so many first home buyers would be purchasing under the $800,000 threshold,which offers a stamp duty concession or exemption.
“Any movement in that direction is progress,but it is a tiny step,” the Corinna Economic Advisory founder said.
“A bigger step may have had a much bigger revenue cost than previously thought.”
He said buyers would quite rationally choose between stamp duty and land tax based on whichever option would allow them to pay the least amount of tax,which meant the revenue loss to the NSW government would be greater.
He suggested another model would be to switch broadly from stamp duty to land tax but offer a credit for the amount of stamp duty people have paid in recent years,which could mean a smaller loss of government revenue.
The federal government could not only offer financial assistance but could also direct the Commonwealth Grants Commission not to reduce the GST revenue share of a state making the change,Eslake said.
NSW Property Services Commissioner John Minns told a panel discussion on Tuesday he would like to see the land tax change expanded to include the whole property market and not just first home buyers.
“Getting rid of stamp duty will help people to move,” Minns said.
“Removing a tax on mobility – I’d love to see it succeed and move forward sooner rather than later.“
With Melissa Heagney