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Perrottet’s stamp duty scheme doesn’t go far enough, experts say

·4-min read
Dominic Perrotett and Sydney houses
First home buyers in NSW will be able to choose between stamp duty or a land tax under the new scheme. (Source: Getty)

The NSW government has taken a step towards abolishing stamp duty but some experts argue the new policy’s design will only undo some of the problems caused by the controversial property tax.

Under the First Home Buyer Choice scheme announced yesterday, first home buyers in NSW will have the opportunity to choose between paying stamp duty or land tax when they buy a property worth less than $1.5 million.

Essentially, that means first home buyers will have the option of paying an annual fee of $400 plus 0.3 per cent of the land value of the property instead of a single lump sum at the point of purchase.

While this policy will make it easier for first time buyers to enter the market - because they won’t have to shell out for stamp duty as part of their upfront costs - some argue the scheme won’t yield any of the other expected benefits of ditching stamp duty for more efficient forms of land tax.

The arguments against stamp duty

While state and territory governments raise a lot of revenue through stamp duty, it has its downsides.

NSW Premier Dominic Perrottet is not a fan. He once said it was the “worst tax a government can make”.

Several economists and academics would also like to see it go.

Independent economist Saul Eslake said people who moved house more often should not have to pay more tax.

“There's something really unfair about a system of property taxation that expects people who, for whatever reason, move four or five times in their lives need to contribute a lot more to the cost of providing teachers, nurses, police and other state government services than someone who happens to live in the same property for 30 or 40 years,” Eslake told ABC Radio.

Victoria University associate professor Jason Nassios said swapping stamp duty for broad-based land tax boosted productivity.

The Grattan Institute’s Brendan Coates said stamp duty also led to worse living standards because it made people reluctant to move house.

This means people may think twice before taking a better job in a new location, or upgrading to a bigger house to accommodate a growing family, or downsizing to something smaller once their children have left home.

Why the NSW government’s policy falls short

Coates said the NSW government's new policy would not transition the state away from stamp duty permanently in its current design.

That’s because once properties have opted in to land tax, they do not automatically become land-tax properties when they are sold again in the future.

He said in the Australian Capital Territory - which had been gradually transitioning away from stamp duty towards a broad-based land tax over a period of 20 years - properties permanently became land-tax properties when a buyer initially opted in.

Under the ACT policy, land tax applies to all property owners, even people who paid stamp duty on a house a long time ago.

“That’s how you permanently transition away from a standard land-tax model,” Coates said.

Coates said the NSW model was more “modest” than the ACT’s tax reforms but also more palatable because it neutralised concerns for people who had already paid stamp duty.

“But you're doing that at the expense of increasing the revenue costs of the transition,” he said, which was estimated at $2.5 billion.

Coates said the government would not be able to expand the opt-in version without funding assistance from the Federal Government to cover the revenue shortfall.

PropTrack’s director of economic research, Cameron Kusher, also criticised the limitations of the scheme to first home buyers only.

“While it is encouraging to see a shift away from stamp duty, the new scheme is targeted only at the first-home-buyer market, which is the smallest cohort of buyers,” he said.

“Another limitation is that the scheme is only payable to first home buyers who choose it and it will not apply to subsequent purchasers of a property.

Kusher said there was scope for the scheme to be expanded.

“The focus that NSW and other state governments have on stamp duty waivers or reductions is an indication that stamp duty is a barrier to market entry for first home buyers,” he said.

“It is also a barrier to market mobility for existing homeowners.

“Given the new scheme is an option for homes up to the value of $1.5 million, there is an opportunity to extend this to subsequent purchasers and investors too.”

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