The Berejiklian government will make the biggest overhaul to stamp duty in 30 years delivering a tax break to future home buyers that will grow over time.
Under the changes the seven price bands, or brackets, which determine how much stamp duty is paid by home purchasers will start to rise with inflation from the middle of next year.
NSW Treasurer, Dominic Perrottet says his stamp duty changes will improve fairness and efficiencyCREDIT:AAP
The brackets have remained largely unchanged since 1986 despite the increase in property prices since then.
The government says the changes will cut the average amount of stamp duty per property transaction by around $500 by 2021 but the savings will rise over time.
NSW Treasurer Dominic Perrottet labelled it the most significant reform to the stamp duty system “in a generation” and said it would deliver a fairer, more efficient system.
“The savings in the short term are modest but over the long term they will be substantial,” he said.
The tax reform will cost the state budget about $185 million in the three years after the changes take effect on July 1 next year.
NSW will be the first state to index stamp duty brackets to the consumer price index.
Stamp duty is levied on residential property purchases using price brackets and rates that rise from 1.25 per cent under $30,000 to 5.02 per cent over $3 million.
During the past 15 years the median house price in Sydney has climbed from around $400,000 to just over $1 million. As a result, stamp duty “bracket creep” caused by property price inflation has pushed up the average rate of duty payable from 3.37 per cent to 4.05 per cent.
The changes to be announced on Monday will reduce, although not eliminate, the effects of stamp duty bracket creep.
To illustrate, Mr Perrottet said that if the state’s stamp duty brackets had been indexed when they were introduced in 1986 someone purchasing a $1 million property today would pay around $8,000 less in stamp duty.
“Anything we can do to reduce the impediment for people to move home or downsize is good reform and this will do that,” he said.
The indexation of stamp duty brackets will only apply to residential property transactions.
The stamp duty reforms come amid a downturn in the Sydney property market. Dwelling values in the city have fallen around 8 per cent since their peak in July 2017, Corelogic figures show.
But there is still widespread voter concern about housing affordability, especially in Sydney, and the cost of housing remains a key political challenge for the Berejiklian government.
Mr Perrottet said the stamp duty changes would help make it “easier for people to realise the dream of owning a home”.
The stamp duty reform is modest compared with recommendations made by the commission of audit conducted when the Coalition won government in 2011.
The audit, by former NSW treasury secretary Michael Lambert, said stamp duty is the “most inefficient of NSW state taxes”. It recommended a ‘Stamp Duty Replacement Tax’ be phased in to replace all property transfer duties. The proposed replacement tax would be based on land values rather than market values of properties and would be payable annually instead of when properties change hands. The report said that change would deliver an annual welfare gain to the state of $2.3 billion.
Separate private sector modelling in 2016 found the NSW economy would get a $5 billion-a-year boost and add thousands of jobs if stamp duty was replaced by a broad-based land tax.
Mr Perrottet said he was open to further reform of property-related taxes but that substantial changes would require the co-operation of the Commonwealth government and other states and territories.
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