This may well be the most important balloon ever floated! Yesterday’s NSW state budget saw Treasurer Dominic Perrotet lean in on the pandemic to usher in generational reform. He boldly opened up to public feedback on the slated proposal to replace stamp duties with a broad-based land tax. The touted tax schedule is proposed as:
Current land tax rates apply only to investors in commercial and residential:
- Threshold one: $734,000 - $2m: $100 plus 1.6 per cent of land value above the threshold.
- Premium threshold: $60,164 plus two per cent of land value above the $4,616,000 threshold.
Property investors will likely have their taxes cut by at least 40% whilst future generations will be saddled with higher public debt. Home buyers are likely to pay less to banks in mortgage interest (reduced stamp duty) while everyone will find it easier to upsize, down size and move closer to work. The financial savings to home buyers may be cancelled out by the higher capitalisation rate - with lower overall property taxes allowing for greater upfront bids. That’s what we have learnt in the ACT.
Supporters can ‘Have their Say’ on the proposed changes by completing this NSW Treasury survey. Your time is now! Read their short discussion paper first. Treasury's quick poll is currently showing a 70-30 support for the reform.
The Treasurer demonstrates some clever politiking by excluding the wealthiest from the transition. The top 20% of high value properties will not be able to transition, meaning that government receives their large stamp duty payments alongside quietening these typically loud voices. Perrottet is clearly playing to first home buyers, struggling to achieve their ever growing deposit requirements.
This reform is certainly a step in the right direction. We just hope that a 0.3% charge on home owners and a 1% charge on investors will be significant enough to encourage a more appropriate allocation of housing. Lead Second Interval author Warwick Smith is quoted in the AFR recognising investors will be the quickest to respond.
Support the movement toward a fairer tax system by manning the comments pages, the talkback radio and dare we say it, the tweets!