Heightened desire for NSW State Budget to offer relief or reform on stamp duty

There's heightened desire that Tuesday's State Budget does something on the stamp duty front. Some seek relief others reform.

Stamp duty has been unchanged in NSW for 32 years despite the median house price rising by 1000 percent or so.

When the current NSW transfer duty rates were budgeted in 1986, the median dwelling price, according to CoreLogic, was $80,000 compared to the current median house price of just above $1 million.

The median stamp duty paid was $1500 after Premier Barry Unsworth's 1986 budget.

The typical buyer now pays $42,000 duty for their acquisition.

The government unwillingness to move on the stamp duty rate was outrageous, Leanne Pilkington, the Real Estate Institute of New South Wales president, recently suggested.

She went even further suggesting the government’s inaction was "nothing less than unconscionable.”

But I suspect next week's budget is not the time for the NSW government to correct the punishing effects of stamp duty bracket creep. 

NSW Treasurer Dominic Perrottet is facing softening house prices and reduced sales activity at a time he's got heightened infrastructure spending demands.

Last financial year NSW residential and commercial property buyers paid $9.8 billion in stamp duty after a record 228,000 sales, with stamp duty accounting for 28 percent of total state tax revenues. 

State Treasury has already downgraded its revenue forecast in the mid-year budget review in December, and the escalating property downturn is now tipped to see revenue down by $865 million this financial year. 

There can be little doubt that stamp duty affects affordability by making buying homes dearer, especially for first home buyers who get most of the current offsetting handouts.

But it affects mobility too.

Stamp duty impedes workers taking advantage of new employment opportunities elsewhere.

It leads to the inefficient use of housing by constraining the capacity of the empty nesters and elderly to downsize into a more appropriately sized home.

Premiers Kristina Keneally and Barry O'Farrell had a shot at an initiative aimed at encouraging seniors to downsize to regional NSW with the twin goal of encouraging new home construction.

Described as an Australian first, it flopped.

State treasurers tend to copy each other's initiatives, so it will be interesting to see whether Perrottet looks over the border to the recent ACT budget.

It will abolish stamp duty for first home buyers with an annual household income of $160,000 or less.

The scheme sees the abolition of the $7000 first home owners grant.

The ACT is also several years into its 20 year plan to abolish stamp duty in favour of higher council rates and land taxation.

Reformers hope NSW takes the initial steps away from stamp duty, replacing it with a universal land tax paid annually on all properties, not just investors. 

It will ensure reliability of revenue and free up property transfers.

This article was first published in the Saturday Daily Telegraph.