The NSW government’s plan to replace stamp duty with an annual property tax could result in purchaser uncertainty, pricing distortion and policy failure if buyers refuse to opt in, say the top accounting bodies.
NSW Treasurer Dominic Perrottet is currently deliberating over a plan to allow property buyers to choose between stamp duty at the point of purchase or lock themselves and future purchasers into an annual tax based on unimproved land value.
While supportive of the move away from the widely regarded as inefficient stamp duty, both Chartered Accountants Australia and New Zealand and CPA Australia remain concerned over the long opt-in transition period and the need to juggle three taxes concurrently: stamp duty, land tax and property tax.
“We support moving from stamp duty to property tax, but there is a real potential of the proposed transitional method having a negative knock-on effect on future generations,” said Susan Franks, CA ANZ senior tax advocate.
“The transitional method to ‘opt in’ is likely to be protracted and complex, with three tax regimes running in parallel for many decades.”
The proposal’s argument that a property tax will improve housing affordability has also been questioned, with CPA Australia noting that it might not be realised as land values increase and earnings growth fails to pick up.
“The comparison of residential property prices and earnings in the Consultation Paper highlights the rapid growth in average property prices compared to slow earnings growth,” said CPA Australia in its submission.
“Similarly, New South Wales land value data reflects similarly rapid increases, raising the concern that property taxes will increase at a rate faster than earnings if current trends continue.
“Therefore, the affordability issues related to stamp duty are not necessarily resolved by the shift to a property tax.
“To the extent that the opt-in property tax does not reduce or dampen property price and land value growth, the potential for property taxes to become burdensome over time on owners, their tenants and the market is high.”
The NSW government has now been urged to provide further modelling to inform stakeholders of the impact on future revenue and property prices.
“There is currently no modelling available to answer serious questions that range from the sustainability of NSW’s revenue model to housing impacts on retirees and first home buyers,” Ms Franks said.
“Typically, in tax reform, it’s best to ‘rip the Band-Aid’ and implement quickly, but there’s some further work required in NSW before that happens; we at least need the right information to guide us.
“We currently have a hot property market, with record-low interest rates, high auction clearance rates and forecast double-digit property value increases over the coming two years, so educating buyers around this tax change is going to be essential.
“Otherwise, we may end up with a dangerous mix of even higher prices for market entrants, and an ongoing property tax as well.”
[Related: Stamp duty reform ‘right thing to do’: RBA]
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