First home buyers could save tens of thousands of dollars under the New South Wales government’s proposal for an optional land tax but housing experts say the “vanilla” plan falls well short of the “revolution” it had initially promised.
On Monday the government said it would introduce its plans for an overhaul of stamp duty into the state’s parliament this week.
The proposal – which Dominic Perrottet wants in place before the election in March – would allow first home buyers to pay an annual land tax rather than stamp duty.
The proposal is a scaled-down version of the policy initially outlined by the premier. As well as being optional, it would only be available to first home buyers on homes up to $1.5m.
On Monday Perrottet described the policy as a “game changer” that would ease the burden on saving for a deposit by removing an upfront cost.
“We’ve all gone through those months and months of saving and saving and saving, to get in, and then by the time you get to the end, you’ve gone backwards,” Perrottet said.
But experts say while the policy is welcome, it would do little to address some of the main problems with stamp duty, including the failure to address a disincentive for empty-nesters to downsize.
“It’s certainly a good idea, but it’s more limited than I would’ve hoped,” said AMP Capital’s chief economist, Dr Shane Oliver.
“Stamp duty is a very bad tax because it distorts decision making in a bad way. If you are an empty-nester who wants to downsize there’s an obvious disincentive to do that in stamp duty you have to pay.
“Offering it to first home buyers is a step in the right direction but they promised us a revolution and it’s come a lot more vanilla.”
The government has said the policy will cost $775m over four years, a key reason that it has backed away from a full-scale overhaul that Perrottet had championed.
But the policy will help first home buyers, according to CoreLogic’s head of research, Tim Lawless.
“We know that saving for a deposit is one of the biggest barriers to owning a home so a broad land tax that eases some of the upfront cost is removing a significant hurdle to entering the marketplace,” he said.
On Monday the government released an online calculator allowing prospective buyers to compare the annual land tax with an upfront stamp duty payment. It shows that a first home buyer in some parts of western Sydney could pay an annual tax for almost two decades before it equalled the value of a stamp duty payment.
In Blacktown, where the median house price is $921,000, one three-bedroom home now listed for sale would attract a stamp duty fee of $36,715, if bought for between $900,000 and $950,000.
On current values, the annual tax would be $1,870.
In Campbelltown, where the median house price is $812,642, a five-bedroom property with a guide of between $790,000 and $830,000 would attract stamp duty of $31,540 if sold for $810,000. That’s compared with $1,702 in annual land tax.
That price will increase, however. Under the government’s proposal, first home buyers who opt to pay a land tax would pay $400 plus 0.3% of the unimproved land value. According to CoreLogic, the house prices in those two areas have gone up 7.2% and 7.8% per annum over the last decade.
“It highlights that even though the land tax will provide a much easier entry point for homebuyers, they should budget for a slightly higher level of tax each year as the value of their property increases,” Lawless said.
With only five sitting weeks until parliament rises before the next election in March, the government may struggle to pass the bill before voters go to the polls. Labor has said it will oppose the “forever tax”, meaning the government will need the support of the crossbench in the upper house.
