“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,” NSW Treasurer Dominic Perrottet said in a statement announcing the changes.
“Whether you are a first homebuyer, a downsizer or upgrading to the family home, you will ultimately benefit as a result of this reform.”
That reform will see the stamp duty brackets indexed to inflation, which Mr Perrottet claimed will address bracket creep.
Bracket creep, he said, is the reason why average stamp duties paid between 2002 and 2017 have risen from 3.37 per cent to 4.05 per cent, just as the median Sydney house price has more than doubled from $400,000 to $1 million.
According to Mr Perrottet, had indexing of the brackets been implemented back in 2002, the duty now payable on a $1.5 million property would be approximately 6,400 lower.
He added that NSW is the first state or territory to introduce inflation-linked indexing on stamp duty – also known as transfer duty – with the measure to begin from 1 July 2019.
Property industry applauds move on “inefficient tax”
Multiple bodies representing the property industry welcomed the move, with Housing Industry Association principal economist Tim Reardon labelling it “a step forward in reducing the taxation imposts on housing”.
“State governments have become increasingly reliant on stamp duty from housing as a main source of revenue,” he said.
“Around $1 in every $5 of state government revenue comes from stamp duty on houses.
“The announcement by the NSW government to address bracket creep for the first time in over 30 years is a meaningful contribution to ensuring that the impost of stamp duty does not continue to grow.”
Mr Reardon called stamp duty an “inefficient tax” that slugs households hard, while also subjecting government budgets to significant volatility as house prices rise and fall.
Jane Fitzgerald of the Property Council of Australia noted that stamp duty adds “almost $50,000 to the purchase [costs] of the average property in Sydney”, and so any move to reduce this burden is a welcome one.
“Stamp duty is a handbrake on transaction activity and locks people into housing, which is not appropriate for their needs,” she said.
“Implementing structural changes to the stamp duty framework is a great long-term investment in providing more affordable housing.”
She called on Mr Perrottet to address the burden of stamp duties further by adjusting the rates themselves to “realign” them with the higher cost of property.
Not everyone was happy though, with head of the Real Estate Institute of NSW, Tim McKibbin, suggesting the move is nothing more than “smoke and mirrors” less than six months out from a state election.
“The inactivity of successive governments to leave things where they are is purely profiteering… it is being an exercise in profiteering at the expense of the property consumer,” Mr McKibbin told My Business’ sister publication, Smart Property Investment.
“Nothing will change.
“It doesn’t start until July next year, so as for a positive impact on the property market, no, it isn’t going to have any impact in reality.”
Mr McKibbin added: “The thing that is disappointing in all of this is that there is very strong evidence to suggest that when you change the tax rate, if you drop the rate, you will actually increase the number of transactions, and with the increase in the transactions, the government will make more revenue… it’s like a sale, if you will. You drop the price of an item a bit, so your margins, your profit, if you will, drop a little, but you sell a great deal more product, and as a consequence of that strategy, you make more money.
“I think this announcement by the Treasurer is all smoke and mirrors.”
What about commercial property?
Attention has focused squarely on residential property and the move to address housing affordability constraints.
However, that leaves the question of whether the indexing of stamp duty rates will apply solely to housing, or whether it will incorporate commercial property transactions, land and even business assets – all of which are subject to the tax.
It was initially believed that only residential property would benefit from the change. However a spokesperson for Mr Perrottet told My Business that “NSW has general rates of stamp duty, which apply to all properties, regardless of what the land or building is used for.”
“The one exclusion is the premium property duty which applies to residential properties only, valued over $3 million,” the spokesperson said.
Last financial year, non-residential transfer duty earned the NSW Government $1.6 billion, around 19 per cent of the total $8.4 billion generated by the tax.