While the news that the NSW Government is planning to remove stamp duty taxes may appear to be good news on the surface, the Real Estate Institute of NSW highlights some of the unintended consequences of simply replacing one tax with another.
“It is clear that the way property is taxed is in need of reform, because the burden it places on home buyers is extreme,” REINSW CEO Tim McKibbin explained.
“Stamp duty has always been a major culprit, but a switch to a ‘land’ or ‘property’ tax which doesn’t ever go away is hardly a more palatable option for many people already finding it hard to afford a property.”
Mr McKibbin points out that the announcement could “adversely affect the market” as potential buyers remain in the dark as to whether the reformation will occur, and when.
“Trading one punitive property tax for another is not tax reform as suggested. The REINSW fully supports a meaningful dialogue in relation to tax reform but yesterday’s announcement that stamp duty is to be replaced by land tax at some point in the future does not represent consultation.
“The community has not been given any details upon which to make decisions for the largest investment most of us will ever make.”
Mr McKibbin notes that, in the past, many other solutions have been floated, such as the option to pay stamp duty off over a period of time, rather than buyers being hit with a lump sum during what is already an expensive time.
Then, there is the matter of trust.
“While removing a tax is always welcomed, can the community be confident that once land tax is established and part of our accepted taxation environment, that government will not reintroduce stamp duty?” Mr McKibbin asked.
“Industry pleas for a reduction in stamp duty in the past have been met with determined resistance from government, which has always maintained that reducing stamp duty will simply push house prices up, because purchasers will have additional money.
“Hypothetically, if government’s assumption is correct, the impact on prices will be interesting to monitor, because house prices are determined not by vendors but by purchasers in competition.
“These purchasers will have finance available, which otherwise would have been put towards stamp duty, but which instead can be used to compete on acquisition price. So, if the hypothesis is correct, the purchaser will not save any money, but will be burdened with land tax for life.”
There are other concerns with the proposal which Mr McKibbin fears “could skew government’s intentions” for the tax reform.
“Housing affordability is not magically improved by the exchange of one property tax for another,” he explained.
“As it stands, around 40 per cent of the cost the consumer pays for new property is taxes and charges levied by all three levels of government.
“Affordability is all about supply. Instead of switching between property taxes, government has the opportunity to focus on the impediments to supply if genuine improvements in affordability are to be unlocked.”
Then there are those ready to buy, who may hold off to avoid paying stamp duty.
“Optimistically, this won’t occur until mid-next year at the earliest,” Mr McKibbin said.
“Until then, we run the risk of buyers maintaining a wait-and-see approach.
“Real estate has experienced a delicately poised rebound in recent times. The importance of this in an economic sense can’t be understated.
“Measures that put the brakes on transactional activity could have a devastating impact on the economy, given the disproportionate contribution property consumers make to the state’s finances.
“On the other side of the transaction are people who already own their home who, on the basis of this announcement, may simply decide to stay where they are and avoid a different new tax altogether.
“The industry remains steadfastly against stamp duty but is the option of a land tax really the lesser of two evils? At least with stamp duty you pay it once, albeit a large amount. Land tax is an ongoing burden.
“True reform would result in people not incurring a tax burden for the simple necessity of maintaining a roof over their heads,” Mr McKibbin concluded.