NSW to phase out stamp duty, introduce land tax

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NSW to phase out stamp duty, introduce land tax

By Alexandra Smith

NSW Premier Dominic Perrottet’s long-held goal to radically overhaul stamp duty and introduce a broad-based land tax will be one of the major reforms in the government’s final pre-election budget.

The Herald can confirm Perrottet will embark on the significant reform, which will mean some home buyers will be able to opt in to an annual land tax rather than an upfront stamp duty payment.

A radical overhaul to stamp duty will be included in this month’s state budget.

A radical overhaul to stamp duty will be included in this month’s state budget.Credit:Peter Rae

Cabinet’s expenditure review committee has approved a reservation of funding for the changes, which will put NSW in front of the other states in housing tax reform. Only the ACT has overhauled stamp duty.

According to the most recent update to the reforms, the top 20 per cent of NSW residential property prices would not be eligible to opt in for land tax and would continue to pay stamp duty, to help limit the decline in the government’s revenue. Past buyers would not be affected.

The decision to move to a land tax would be permanently locked to the property, so future owners would have to pay the land tax if a previous one had.

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This would eventually lead to stamp duty being phased out across NSW.

NSW Treasury has estimated that an optional annual tax would collect about 20 per cent less revenue, which equates to a projected shortfall of about $2.5 billion a year.

Perrottet would not reveal the details of the package to be unveiled in the budget, and NSW Treasurer Matt Kean is leaving it to the premier to detail his signature policy. However, the Herald has confirmed from senior government sources the reforms are in the budget.

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The premier championed stamp duty reform when he was treasurer – describing it as an “inherently terrible tax” – but Perrottet has repeatedly said the state could not afford to overhaul the tax system without financial help from the federal government.

Federal Treasurer Jim Chalmers has said he is open to a collaborative approach to tackling housing affordability ahead of a state treasurers’ meeting in Brisbane on July 22, where reform options to boost the economy will be on the agenda.

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Perrottet last week told the Herald that tax reform would only be achieved if the federal government came to the table.

“We need the federal government to help the states finance reforms to drive productivity to improve social outcomes like housing affordability, health care and education,” Perrottet said.

Revenue from stamp duty surged by more than $5 billion during the pandemic on the back of higher house prices. Data from Revenue NSW shows the 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.

The ACT is the only Australian jurisdiction to have successfully implemented a policy to switch from stamp duty to a land tax regime. It is in the process of phasing out stamp duty over a 20-year period that began in 2012.

NSW Labor’s shadow treasurer Daniel Mookhey said Perrottet had no mandate to introduce a new land tax on the family home.

“Inflation is skyrocketing, interest rates are soaring, electricity prices are climbing and tolls are about to rise again,” Mookhey said.

“Instead of rushing a land tax through Parliament, the premier should take it to next election.”

Stamp duty reform and childcare will be the two major pieces of reform in the state budget, with Kean to also unveil a major package to support women.

Kean has already revealed that new childcare centres will be built at Westmead, Bankstown-Lidcombe, Shellharbour and Shoalhaven hospitals, with the government to review its other existing and planned hospitals to ensure hospital staff have access to childcare.

The government is also overhauling its paid parental leave scheme. From October, there will no longer be a distinction between a primary or secondary carer, meaning every mother and father in the public sector will be entitled to at least 14 weeks’ paid parental leave.

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