The NSW government is launching a public consultation on enabling home buyers to opt out of stamp duty and instead choose a smaller annual property tax.
Announced as part of the NSW budget 2020-21, the state government is to launch a public consultation to seek the community’s view on tax reform to reduce the upfront costs for buyers and remove “one of the biggest financial barriers to home ownership”.
The proposed model would give buyers a choice to axe stamp duty at the point of purchase and choose an annual property charge instead.
The consultation process outlines a proposed model that would:
- Give people purchasing a property the choice between paying stamp duty upfront or opting for the smaller annual property tax;
- Enable people who opt in to the system to also eliminate any land tax liability;
- Ensure that the current property owners who are not buying or selling are not affected;
- Replace the current stamp duty concessions provided to first home buyers with a new grant; and
- The proposed model includes a property tax rate that would support and incentivise home ownership with a lower rate for owner-occupiers and higher rates for investors and commercial properties.
NSW Treasurer Dominic Perrottet said the current stamp duty system was centuries-old and in need of an overhaul to give NSW residents a modern tax system.
“Stamp duty is a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life,” he said while delivering the budget.
“It adds tens of thousands of dollars to the cost of the biggest financial commitment most people ever make. If you want to move, change jobs or switch careers, upsize or downsize to match your family size, stamp duty can be the spanner in the works.
“It is holding our economy back at a time we need to be going full throttle.
“That’s why we believe that reform is the best way forward. Our proposal would give more people the opportunity to own their own home, and more freedom to live in the home that’s right for them.
“This is the single most important economic reform we can tackle to turn the Australian dream into NSW’s reality,” Mr Perrottet said.
He continued: “There would be no impact unless you are purchasing a property and you make the choice to change. For everyone else, everything stays the same...
“The model proposed could bring tens of thousands of dollars of relief to the average home buyer and turbocharge economic growth.
“This model would give NSW a realistic pathway to achieving the most important state economic reform of the last half century. Over time it could generate 75,000 new jobs and add an extra $3,300 of income for every household in NSW.
“This would be an important step towards a tax system that propels the NSW economy forward. And when NSW goes well, Australia goes well.”
The NSW Treasurer added that the model could “inject more than $11 billion into the NSW economy in the first four years and boost NSW gross state product by 1.7 per cent over the long term”.
“Reform of the inefficient stamp duty system could also create and support thousands of jobs to boost the economy and kickstart our recovery for a prosperous, post-pandemic NSW,” he continued.
“Our proposal today is just the first step on a journey to design a better system together with the people of our state.
“We will be seeking feedback from the community, and the next step will reflect that conversation with the public.
“Our vision is big and it is bold, but it has to be. Because the challenges we face will demand every ounce of effort, ingenuity and imagination our state can muster.”
The reform could be set in motion in the second half of 2021 after seeking community feedback over the coming months.
Several commentators have welcome the stamp duty move, including Andy Kerr, NAB executive, home ownership, who said: For many customers stamp duty is a big hurdle to buying a home. Any attempt to free up land purchasing and update the current system in the interests of prospective home owners is a good thing. This is most critical for first home buyers, who are often slowed down by the cost of stamp duty.
“We also support the idea of the opt out model, which gives homebuyers the ability to choose the option that’s right for them.
“We expect the proposed changes would help to stimulate economic activity once implemented.
“We welcome the public consultation and will engage with the process.”
Political economist at the University of Sydney Dr Gareth Bryant, also commented, saying: “Land tax is generally a fairer and more reliable revenue source for state governments than stamp duty.
“Making the change optional for new house purchases is intended to deal with the difficult politics of land tax on family homes.”
However, he added: “The government needs to ensure that the reform is designed in a way that is progressive, doesn’t further inflate house prices, and avoids unintended consequences.”
As well as stamp duty, the NSW budget includes a range of support for small and medium-sized enterprises (SMEs).
The NSW government has announced a $1 billion Working for NSW Fund to sustain businesses, create cash flow and retain employees across government and non-government businesses.
Over $6 billion will go towards waiving or deferring taxes, fees and levies, including payroll tax and licensing and registration fees to support businesses.
The state government has said that it will extend funding of $39.3 million for the Business Connect program to assist businesses in need of advice in navigating the challenges of COVID-19.
It has also announced a further permanent increase in the payroll tax-free threshold from $1 million to $1.2 million, which will see 3,500 NSW businesses no longer having to pay payroll tax.
The payroll tax rate will also be cut from 5.45 per cent to 4.85 per cent from 1 July 2020 for two years, with the government estimating a saving to businesses of around $2.4 billion for this fiscal year and the next.
ScotPac CEO Jon Sutton welcomed the payroll tax move, stating: “Simplifying the complex national tax system, getting rid of state payroll taxes and cutting red tape nationally would have the biggest daily impact for Australia’s small to medium business sector.”
“Our SME Growth Index surveys the small-business sector across Australia twice a year, and business owners always list high taxes and confusing, multiple taxes as a significant barrier to growth.”
The state government budget includes a commitment of $472 million to provide small and medium-sized businesses that do not pay payroll tax with a $1,500 digital voucher for the cost of government fees and charges.
Up to $500 million will be spent on the Out and About program to stimulate spending in the local economy, including restaurants, visitor sites and cultural attractions.
Under the program, every adult resident will be eligible to claim up to $100 in digital vouchers to spend on eating out and entertainment.
The government will also invest $15 million in a partnership with the City of Sydney to help revitalise the Sydney CBD and help business get back on their feet, including through promoting outdoor entertainment and al fresco dining.
Greg Moshal, CEO of SME lender Prospa, commented: “It’s great to see government support and tax relief for small business and continued recognition of the vital role the sector plays in supporting jobs and our economic recovery.
“The new Out and About voucher scheme will help boost spending and lift confidence for hospitality and entertainment businesses across the state. The CBD trial should provide support to some of the hardest-hit business owners in these sectors at a key time of year.
“Prospa’s data shows that while hospitality in general has been impacted heavily by restrictions, location has been an important factor in the ability of businesses to bounce back. CBD-based cafes and restaurants have experienced a dramatic drop in footfall over the past several months due to the shift to remote work, while many suburban cafes have enjoyed a boost, finding new customers now working from home and staying in their local communities.”
Mr Moshal continued: “With December and January a typically quiet period for CBD businesses, this incentive to start venturing back into the city could deliver a much-needed cash injection for those businesses that have had a particularly tough eight months.”
The NSW government has also committed to establish a $250 million Jobs Plus Program that aims to create or support 25,000 jobs to 30 June 2022 and will support companies who want to relocate their head offices to NSW or expand their jobs footprint in NSW.
The program includes payroll tax relief, up to a four-year period, for every new job created where a business has created at least 30 new net jobs.
Overall, the NSW budget will result in a $6.9 billion deficit in 2019-20, expected to rise to $16 billion in 2020-21.
[Related: RBA backs move to axe stamp duty]