NSW will offer first home buyers the option of paying an annual land tax rather than stamp duty if they buy a property worth up to $1.5 million.
Buyers who opt for the land tax will pay an annual levy of $400 and a 0.3 per cent tax on the value of their land. That translates to $1900 a year for those buying a $1 million home (assuming the land alone is worth $500,000), rather than an upfront stamp duty impost of $40,305.
The premier says the move will help first home buyers into the market faster.
It’s true that avoiding stamp duty will shave roughly two years off the time it takes a typical buyer to save a 20 per cent deposit. But increasing buyers’ purchasing power will also push up house prices a little.
What the government gives with one hand, the housing market will partly take back with the other.
Disappointingly, Perrottet’s policy falls a long way short of the more ambitious proposal he flagged last year. That plan would have offered buyers of 80 per cent of homes across NSW the option of paying an annual land tax – including people who had owned homes previously.
And it would have offered a similar choice to the owners of commercial and agricultural properties.
Stamp duty is a bad tax because it discourages home owners from moving house as their lives change, as doing so would mean having to pay stamp duty a second time.
Fixing that problem is key to capturing NSW Treasury’s estimated $10-billion-a-year economic dividend from stamp duty reform in the long term.
Nor do the reforms announced this week set NSW on the path to permanently replacing stamp duty with a land tax.
Worst of all worlds
Perrottet’s earlier proposal envisaged an opt-in model as a way to gradually shift all properties into the land tax net. Once someone chose to pay land tax rather than stamp duty on a property, it would be subject to land tax even after it was sold.
But under the policy announced this week, even where first home buyers opt to pay the new land tax instead of stamp duty, those homes won’t be subject to land tax once sold to another buyer.
Rather than taking the first step on the road to broader stamp duty reform, the premier is leading us into a cul-de-sac.
Even more disappointing was the reaction of NSW Opposition Leader Chris Minns, who declared his opposition to a “tax on every single home forever”.
Instead of a bipartisan approach to major economic reform, we find ourselves in the worst of all worlds, with an opposition committing to oppose a policy the government hasn’t even committed to enacting.
The gulf between the premier’s ambitions and Tuesday’s announcement is partly explained by the lack of federal support.
The premier’s public pleas for the feds to help fund the transition – justified by the fact Canberra would collect the bulk of the extra tax revenue resulting from a larger, post-reform economy – were met with deafening silence from former federal treasurer Josh Frydenberg.
New Treasurer Jim Chalmers signalled he was open to the idea, but it all came too late.
Without federal support, the NSW government judged that the state could not afford to go it alone.
Rather than following NSW’s approach, other state premiers with reforming zeal should look to the ACT, which is now 10 years into a 20-year plan to phase out stamp duty by gradually replacing it with a broad-based property tax.
Adopting the ACT model would ensure any state would have sufficient revenue during the transition. And any future federal support could be used to offer credits to recent purchasers in exchange for shortening the phase-in period for a land tax.
Serious stamp duty reform in our biggest state will have to wait. And we’ll all be the poorer for it.
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