News - 3 Jun, 2020

Pressure mounts on NSW government to abolish stamp duty taxes

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Potential changes to the way stamp duty is applied to property sales are set to make massive changes to Australian property markets.


The abolition of traditional stamp duty is expected to be a key point in the Federal Financial Relations report to be given to NSW Premier, Dominic Perrottet later this week – increasing pressure on the government to make adjustments to the tax.

Both New South Wales and Victoria are reportedly considering the abolition of stamp duties in an effort to boost the housing economy off the back of the coronavirus pandemic. If agreed to, the proposal may make lump sum stamp duty payments an ‘opt-in’ choice for buyers, who could instead choose to pay smaller annual land taxes over a number of years. Further reforms could see the value of annual land taxes carried over to new properties as buyers move.

Stamp duty – or land transfer duty – is a mandatory, one-off tax homeowners pay on the transfer of land from seller to owner, on top of the purchase price of the property. In Sydney and Melbourne, the cost of stamp duty on a median-priced house can be in excess of $40,000, with the current stamp duty system worth around $20 billion to State government finances. In Melbourne, it’s estimated that as much as 40% of the State’s revenue comes from stamp duty payments.

The current stamp duty system discourages buying, selling and moving freely as buyers are hit with a huge tax alongside other new home costs. The introduction of an annual land tax could be a solution to this, giving people more freedom to move for study and work opportunities and encouraging seniors to downsize and free up property market stock for new buyers. Given the current slowing of the property market around Australia, a switch-up of the stamp duty system to an annualised payment could encourage new homebuyers and boost the economy.

However, while potential reforms continue to place a question mark on the industry, they could discourage homebuyers who are waiting to see a result on the issue. Those looking to purchase property in New South Wales and Victoria will likely be waiting on a verdict on the stamp duty issue before they commit to a purchase, pressuring those State governments to act quickly.

Insights Manager at Finder, Graham Cooke said stamp duty makes the process of home buying even harder to purchasers, likening stamp duty to an on-the-spot fine for home buyers.

“Not only do borrowers have to save a 20% deposit, they also need to save well over $10,000 – in some cases more than $80,000 – for a tax that generally cannot be included in your mortgage,” said Mr Cooke.

“As a borrower, investing that $10k-$80k in the value of your home rather than immediately losing it to the government will be a huge benefit.”

According to Finder’s recent RBA Cash Rate survey, more than two-thirds of economists surveyed believe stamp duty will be abolished within the next 18 months, while four in five believe stamp duty taxes should be axed in favour of an annual land tax.

While house pricing has remained largely steady through the coronavirus crisis, CoreLogic revealed figures showing property values declined by 0.5% during May, marking the first decline in values since June 2019. Melbourne was hit particularly hard, with property values declining by 0.9% over the month, while in Perth values fell by 0.6% and in Sydney by 0.4%, prompting reform to the stamp duty system from buyers.

The property market has been one of the hardest hit industries by the coronavirus crisis. Property sales slumped as physical distancing restrictions forced a temporary halt on open homes and on-site auctions. Movement in the market has also been slow, with economists predicting a forthcoming economic recession as unemployment rates rise around the country. In a worst-case scenario, it has been predicted that the market could fall by as much as 30%.

You might also like: Public auctions are back on in Sydney and Melbourne

Both State and Federal governments have announced a range of stimulus packages to reinvigorate the housing market, and further packages are expected this week, including an overhaul to existing First Home Owner Grant (FHOG) schemes to encourage new home builds and renovation works.

Houses under construction in western Sydney

It is anticipated that grants of $25,000 will be offered to homeowners for building or extensive renovation work, but buyers will be expected to match the spend to qualify for the reimbursement. These will likely be additions to existing FHOG and therefore, subject to the requirements already set in place by each State government.

You might also like: First Home Buyers are Still Active on the Property Market

Sources:

Words by Danielle Austin

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