NSW takes extra $5b from property price explosion amid pandemic

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NSW takes extra $5b from property price explosion amid pandemic

By Andrew Taylor

Revenue from stamp duty surged by more than $5 billion during the pandemic fuelled by higher house prices, amid calls from economists and the real estate industry to abolish what they say is an inequitable tax that is contributing to the housing affordability crisis.

The NSW government last year proposed phasing out stamp duty with a land tax, but later walked back the plan by saying it could only be achieved with federal support. The NSW Opposition also appears unlikely to support efforts to replace the tax.

Revenue from stamp duty has surged during the pandemic fuelled by higher house prices.

Revenue from stamp duty has surged during the pandemic fuelled by higher house prices.Credit:Peter Rae

Data from Revenue NSW shows the state government collected $12.2 billion from land-related transfer duty in the 10 months to April 2022. In comparison, $9.6 billion of land duty was collected in 2020-21 and $7.1 billion in 2019-20.

Revenue collected from stamp duty this financial year is more than three times higher than the $3.3 billion collected in 2011-12.

Monthly revenue from stamp duty surged during the COVID-19 crisis - from a low of $450 million in May 2020 to a peak of $1.6 billion in October and December 2021 before dropping to $976 million in April.

The state government will provide updated revenue forecasts when it hands down its budget on June 21.

A NSW Treasury spokeswoman said the revenue was variable “due to a number of market, economic and other impacts including the global COVID-19 pandemic”.

Labor’s treasury spokesman Daniel Mookhey said “massive levels” of economic stimulus had sparked a property boom that led to a surge in stamp duty revenue.

“It has come to the rescue of the NSW budget. But it won’t last,” he said. “If property prices fall over the next year as the market expects, so will the state’s stamp duty revenues.”

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NSW Premier Dominic Perrottet last year said he was committed to axing stamp duty, but Treasurer Matt Kean said financial assistance from the federal government was needed to overhaul stamp duty.

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Federal Treasurer Jim Chalmers was contacted for comment as to whether the government would consider providing NSW with this assistance.

The proposal would have given home buyers the option of paying a large lump sum upfront, similar to stamp duty, or an annual property tax. Under the proposed change, once a property is subject to the tax, subsequent owners must also pay.

Mookhey said Labor was sceptical about plans to replace stamp duty with a land tax.

“There is no way a typical family in NSW can afford to pay a forever tax on their forever home, as Mr Perrottet is proposing,” he said.

Mookhey said switching to a land tax could drive up property prices in the short to medium term, while burning a “massive hole” in the state’s budget.

“The NSW Treasury itself has made clear that Mr Perrottet’s proposal will cost the state a minimum of $3.2 billion every year,” he said. “Every future government will come under immense pressure to cut public services and rack up record levels of debt to pay for the premier’s new tax.”

But leading economists are in favour of a land tax, saying stamp duty is inefficient and inequitable. So far, only the ACT has moved to replace stamp duties with a broad-based property tax.

The Grattan Institute’s economic policy senior associate Joey Moloney estimated the average amount of stamp duty paid in NSW in the past year was $57,474 - compared to $39,445 in the 12 months to April 2021.

Moloney said stamp duty was “one of the most inefficient and inequitable taxes” and created a disincentive for people to move house or downsize.

“The wash-up is a housing stock not optimally allocated across households - for example, empty-nesters with spare bedrooms next to a growing family running out of room,” he said.

Moloney said axing stamp duty would lead to better use of the existing housing stock, “which could see long-term rents and house prices fall by up to 6 per cent”.

Replacing stamp duties with a broad-based property tax could leave residents up to $5 billion a year better off and improve housing affordability, Moloney said.

Property taxes were often unpopular because they were highly visible and difficult to avoid, Moloney said.“In contrast, stamp duties, while a huge impost, still account for only a small fraction of the purchase price of a property today.”

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The Australia Institute’s senior economist Matt Grudnoff said a land tax, unlike stamp duties, would not discourage changing properties.

“A land tax is essentially a wealth tax and Australia has traditionally taxed wealth lightly compared to other developed countries,” he said.

A land tax could also be calibrated so it raised the same amount of revenue as stamp duties, Grudnoff said.

The real estate industry also wants stamp duty axed, but Tim McKibbin, head of the Real Estate Institute of NSW said: “We don’t see much point in getting rid of stamp duty and replacing it with a property tax.”

McKibbin said stamp duty inflated house prices and distorts people’s decisions about transacting property.

He said 40 per cent of the cost of new housing were taxes and charges levied across the three levels of government.

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