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NSW Treasury has published a discussion paper, NSW Review of Federal Financial Relations, as part of the state government’s review into its revenue arrangements as announced in its 2019 state budget.
Among the areas for review outlined by Treasury is the NSW government’s stamp duty policy, which it conceded has been viewed as a “highly inefficient tax” that serves as a barrier to homeownership and property mobility.
“The states have, historically, relied on taxes that have relatively high economic and social costs and dampen productivity. Some taxes have larger impacts than others,” the discussion paper reads.
“Stamp duty on residential properties are particularly costly as they add to the cost of buying a house and therefore discourage people from downsizing, or moving closer to preferred jobs, schools and family.”
Treasury also flagged that stamp duty, which totals 21.6 per cent of the government’s overall revenue, “remains vulnerable to volatile property cycles”.
According to the Housing Industry Association’s (HIA) Stamp Duty Watch report, home buyers paid $18.9 billion in stamp duty across Australia in the 2018-19 financial year, down from $21.3 billion the previous year.
HIA attributed the reduction in stamp duty revenues over the period to the downturn in the housing market, which saw demand for housing slump, spurring an 8.3 per cent peak-to-trough fall in national home values.
Following the release of the discussion paper, CEO of the Property Council of Australia Ken Morrison said that while he’s supportive of stamp duty reform, state governments should carefully manage the transition to an alternative policy.
“Almost everyone agrees that stamp duty is an inefficient and bad tax, but getting rid of it will be an enormous challenge with policy as well as political risks,” Mr Morrison said.
“Stamp duty cannot be simply swapped out for another new tax; the full impacts of such a change would need to be examined, and the benefits and consequences fully explored.
“But doing nothing is not a sensible or fiscally responsible option.”
This comes amid calls for stamp duty to be replaced by a land tax, as introduced by the ACT government.
According to CoreLogic’s head of research, Tim Lawleess, such a tax would reduce the volatility of state government revenue while also alleviating housing affordability pressures.
“In some markets, if you’re not a first home buyer, or don’t satisfy the criteria for a stamp duty concession, you’re paying around $30,000 just to make a transaction in the marketplace,” he said.
“The fact that we’ve only seen one of our states and territories starting to transition away from stamp duty is still pretty baffling to me, particularly when you see state governments moving through the fluctuations and the ebbs and flows of the marketplace, which has a profound impact on stamp duty revenues.”
[Related: Government commitment to stamp duty ‘baffling’]
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