24 June 2022

How NSW's stamp duty shake-up compares to the ACT's

| Lottie Twyford
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NSW treasurer Matt Kean and ACT Chief Minister Andrew Barr

When it comes to stamp duty reform, NSW Treasurer Matt Kean and ACT Treasurer (and Chief Minister) Andrew Barr are on the same page. Photo: Screenshot/Lottie Twyford.

When the NSW state budget was handed down this week, it contained policies that may have sounded familiar to Canberrans.

That’s because NSW – a Liberal-run state – has plans to completely overhaul its property tax system in ways that are not so dissimilar to a program of reform the ACT’s Labor-Greens Government first embarked on more than a decade ago.

The two states are now the only jurisdictions in the country intent on replacing stamp duty with land tax.

What’s changed in NSW for first home buyers?

From next year, eligible first home buyers purchasing a property up to $1.5 million can opt out of paying stamp duty and instead opt-in to paying an annual fee of $400 plus 0.3 per cent of the land value.

While the changes only impact first home buyers, NSW Treasurer Matt Kean described the change as a “first step” in “testing the waters” of stamp-duty reform – an indication that more is to come.

“It will mean more NSW residents will get into their first home at an earlier age and achieve the great Australian dream of home ownership,” Mr Kean said of the reform.

It’s believed around 55,000 people a year would be able to benefit from the scheme.

The current first home buyer stamp duty exemption for properties less than $650,000 will remain in place and the duty for properties between $650,000 and $800,000 will continue to fall.

Housing Coombs

The ACT Government has been on a mission to reform stamp duty for a decade. Photo: Ian Bushnell.

What does the ACT have on offer for first-home buyers?

Offers are already sweeter for first home buyers in the ACT, with most completely exempt from paying duty if the property costs less than $1 million.

If the purchase price exceeds that, the buyer pays reduced duty.

What else has the ACT done to stamp duty?

Earlier this year, the government removed stamp duty from off-the-plan property purchases up to $600,00, following moves last year to exempt similar purchases up to the value of $500,000.

This was for all purchasers – not just first home buyers.

But it’s been working on abolishing what Mr Barr often calls an “inefficient tax” for much longer than that.

The government’s 20-year-tax reform plan began in 2012. By the time it’s done, there will be no duty on property transfers at all.

Residential stamp duty rates have been falling since then, replaced instead with increases to rates – although these increases were capped for five years following the COVID-19-induced economic shutdown.

An analysis conducted in 2020 showed the reform had been roughly revenue-neutral over its first seven years, helped to achieve a more efficient and competitive economy, and contributed to a fairer tax system.

Rate rises have been the battleground on which the last three ACT elections were fought, with the Canberra Liberals ultimately being defeated at each one.

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What does the NSW Government want to do to stamp duty in the long run?

NSW Premier Dominic Perrottet has been pushing for a move away from duty since he was treasurer.

Initially, Mr Perrottet floated a plan where 80 per cent of homes across the state would have had the option of paying an annual land tax and all buyers – regardless of whether they were first home buyers or not -would have been eligible.

So the current reforms in that state fall a long way short of what he wanted. He’d previously blamed the Commonwealth government for their failure to come to the table, conceding he needed its support.

But it is likely there will be further announcements in this space.

This is despite the fact the NSW Opposition – the Labor Party – is up in arms about the latest plan, accusing the government of charging families an annual tax that would last forever.

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Why don’t (ACT) governments like stamp duty?

According to the ACT Government:

  1. Duty is inefficient: it influences people to make less optimal decisions about housing.
  2. Duty is inequitable: it is only paid by the small part of the community that buys properties.
  3. Duty is an unstable source of revenue as the level of revenue depends on the property market.
  4. Duty is also a significant financial barrier for first home buyers.

According to the Canberra Liberals, people also don’t like paying higher rates.

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HiddenDragon7:47 pm 26 Jun 22

The real point here is not the difference between the details of what’s underway in the ACT and what’s currently proposed in NSW, it’s that the latter is still a two-party democracy in which those in power know there are limits to what they can get away with. The same point could be made (in spite of current parliamentary numbers in WA and Victoria) in the six other sub-national jurisdictions – which are thus far proving very coy about embracing this supposedly transformational reform.

The issue which no-one is talking about is why is it that, not so many decades ago, state governments managed to deliver decent health, education, infrastructure and police services without extortionate taxes on property, without flogging off just about every asset they hold on behalf of the public, and without tolls and other “user pays” etc. charges which often amount to double taxation. Part of the answer may be the abolition of another duty – i.e. estate duty – which Australia’s army of Millennial and Gen-X progressive reformers and inter-generational equity warriors don’t seem very keen to talk about – can’t possibly think why that would be……

One might also invert your point, HiddenDragon, to wonder why State governments ‘rushed to flog off just about every asset … [while increasing] user pays’.
Estate capital taxes are an apparently attractive idea which proves not very efficient, so far as I have noticed in other countries. Not very popular either, judging from 2019 when no-one proposed them yet still they were a topic. Perhaps if capital and income were appropriately taxed through life we could skip trying to make up for a dearth at death.

“The issue which no-one is talking about is why is it that, not so many decades ago, state governments managed to deliver decent health, education, infrastructure and police services without extortionate taxes on property,”

Who says they delivered decent services? Bit of Rose coloured glasses going on about the past here.

And as for estate taxes, they’re inefficient and open to abuse/avoidance.

The reason why no one is talking about them? They aren’t very good.

I hate the ACT Government’s compulsory increased Rates scheme, partially since it also applies to households that had already paid Stamp Duty on their purchases.

The argument that replacing Stamp Duty with increased Rates makes homeownership more affordable, is rubbish. Ownership costs continue after the purchase. When interest rates increase, having to pay extra Rates, impacts your capacity to meet those increased mortgage repayments. Extra Rates are an ongoing ownership cost.

As I see it, Stamp Duty is a once-off cost, whereas increased Rates are a tax forever.

At least with the NSW system, the purchaser has the option.

“… with the NSW system, the purchaser has the option.”
That won’t last.

I have not heard that the reform is intended to make properties cheaper, as such. It is supposed to be revenue-neutral. An important aim is to reduce frictional costs in house transactions improving mobility between housing, points 1 and 4 above. Improved revenue stability also improves the basis for government planning.

Exactly Phydeaux.

Whilst there may be some benefits to housing costs around more efficient use of land, it isn’t the main game.

At least those in NSW get to chose one or the other. Many of us paid the full stamp duty and are now paying the increased rates.

And you’re never going to move again ever?

We/they have replaced a bad tax (stamp duty) with an even worse and unfairer tax (a tax on property values). Property rates are based on a formula linked to rising property values. So as property values go up so too do rates. While income tax is a progressive tax, because the higher your income the more tax you pay, land property value tax is a regressive and unfair tax, assessed on rising annual land value, not capacity to pay. A home owner has no control over land values. Each time cashed up property buyers bid up the price of houses in the suburb, local land values rise, meaning rates go up. Well in excess of inflation. Rates have been rising by over 10%pa and have tripled in the ACT since 2012. The beneficiaries are governments, property developers and real estate agents who see stamp duty as a disincentive to buy and so impacting on their commission. The losers are home owners and renters, caught in a spiralling tax trap, just as mortgage interest rates are on the rise.

Acton, you propose that asset value has no value. Weird.

Surely this is a joke?

Complaining about being objectively rich and having to pay some tax on that wealth.

Oh the horror of it all.

Nobody wants to pay extra rates, but when it comes down to it, people in better locations and on larger properties will pay their fair share of tax. People sitting on an inner city property because they bought it 40 years ago and paid hardly any tax to own it will have to pay more for the privilege. Yes this does create some issues, but no change ever is painless for all of society. It also enables people to move to an appropriately sized property or location without being taxed to do it. If we don’t change the bad things to be better, because we can think of one reason against vs hundreds for then nothing will ever improve.

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