If the New South Wales government gets its way, first home buyers in the state will be faced with an interesting question from January: pay stamp duty upfront, or opt for a yearly land tax.
Introduced into parliament on Tuesday, the proposal is a scaled-down version of the policy initially outlined by the premier, Dominic Perrottet. It would give first home buyers the option of paying land tax over stamp duty on homes worth up to $1.5m.
The Labor opposition is vocally opposed to the policy, arguing it is a “forever tax” and a “Trojan horse” that will eventually be expanded to other parts of the housing market, particularly retirees.
But, is it a good policy for people trying to enter the property market now?
The answer depends on various factors including whether you’re buying a house or unit and, crucially, how long you plan to own the property. Sell early, and opting for a land tax could save you tens of thousands of dollars. But if you decide to stay put for a long time, you may come to rue not paying stamp duty upfront.
Guardian Australia analysed a selection of properties currently on the market to show the differences in how the land tax could impact buyers.
In each of these examples, we’ve assumed the tax on the land value of the property would increase by the government’s decreed maximum of 4% a year. Also keep in mind that if you’re borrowing money to pay stamp duty, you will be paying interest on that, which has not been accounted for here.
1. Two-bedroom apartment in San Souci, southern Sydney
Price: $925,000
Stamp duty: $36,715
Land tax in year one: $1,717
Years until total land tax bill exceeds stamp duty: 17
Total land tax bill if you sell after 25 years: $64,848
2. Three-bedroom house in Fairfield, western Sydney
Price: $975,000
Stamp duty: $38,907
Land tax in year one: $2,209
Years until total land tax bill exceeds stamp duty: 15
Total land tax bill if you sell after 25 years: $85,337
3. Three-bedroom townhouse in Newcastle
Price: $850,000
Stamp duty: $33,340
Land tax in year one: $915
Years until total land tax bill exceeds stamp duty: 27
Total land tax bill if you sell after 25 years: $31,448
4. Three-bedroom apartment in Coogee, eastern Sydney
Price: $1,342,000
Stamp duty: $58,038
Land tax in year one: $1,262
Years until total land tax bill exceeds stamp duty: 30
Total land tax bill if you sell after 25 years: $45,899
5. Three-bedroom home in Orange, central tablelands
Price: $680,000
Stamp duty: $6,218
Land tax in year one: $976
Years until total land tax bill exceeds stamp duty: 6
Total land tax bill if you sell after 25 years: $33,988
Before deciding to pay land tax, it’s important to know whether existing concessions apply to your purchase. Currently, NSW has stamp duty exemptions for first home buyers which the government says won’t be affected by the legislation.
For example, someone who buys an existing home for less than $650,000 can apply for a full stamp duty exemption, while homes values at between $650,000 and $800,000 are eligible for a concessional rate.
NSW Labor has said it will oppose the policy. In the main, it claims that the policy is only optional for now, and that the Coalition will roll it out to other sections of the market after the March 2023 election.
There is some justification in suspecting the government might want to roll it out further. The policy originally floated by Perrottet when he was treasurer in 2019 was far more ambitious; he wanted 80% of owners able to pay land tax, including people who had owned homes previously. He has also said previously that he would like to investigate making it available to retirees.
Economists and housing experts want a wider rollout, and say the government has been too cautious in its approach.
AMP Capital’s chief economist, Dr Shane Oliver, said this week empty nesters were perhaps the section of the market who should be targeted by the policy, given stamp duty is a disincentive to downsizing and increasing the availability of larger housing stock.
The opposition also seized on the fact that people who decide to use their first home as an investment would pay more in land tax. While the tax for a first home is calculated at $400 plus 0.3% of land value, people who treat their property as an investment will pay $1500 plus 1.1% of the land value.
The shadow treasurer, Daniel Mookhey, said on Tuesday that could see the rental market increase.
“If you look at the rental stock in Sydney, a huge proportion of the properties that are available for rent are actually let by people who have bought their first home and are using that to accumulate the ability to upgrade,” he said.
“The concern that we have with the escalation mechanism on land tax is that it will absolutely increase rents as well as they have to recover the additional [tax] they have to pay.”
It does open Labor up to an easy riposte. When the opposition leader, Chris Minns, challenged the government on this aspect of the policy in question time on Tuesday, Perrottet responded: “On this side of the house we stand with first home buyers, on that side … they stand up for property moguls”.
