Last week the State Budget for NSW was handed down by the Treasurer headlining continued big-spending and thanks to strong house prices, a big jump in Stamp Duty receipts.
While only a few weeks earlier, by chance an updated progress report on the proposed Stamp Duty reforms was published.
These two events bring into sharp focus the complexity of achieving Stamp Duty reform and that’s despite the general agreement that reform is needed and well overdue. One reason is that Stamp Duty revenues tend to fluctuate and also hinders housing affordability.
In last week’s budget, Sydney’s booming property market resulted in the State Government banking $1 billion surprise Stamp Duty revenue. The total revenue from Stamp Duty was $9.379 billion for the 2020-21 financial year. An earlier estimate was $8.372 billion while last year’s budget forecast $7.9 billion.
Perhaps of more interest is the fact that Stamp Duty is now the biggest State revenue source, overtaking payroll tax. While the result was termed ‘good news for NSW’ it suggests even greater urgency for reform.
The tax burden on homebuyers looks more out of control than ever as Stamp Duty might head towards almost $10 billion.
The volatility of Stamp Duty revenue is not new. In October 2015 Stamp Duty produced another so called ‘bonanza’. Sydney’s property market had delivered record Stamp Duty revenue along with predictions of a looming market slowdown.
At the time, the Office of State Revenue showed that the government pocketed receipts of $400 million more in the first quarter of 2015-16 than the same period last financial year.
In her first budget in June, the then Treasurer Gladys Berejiklian announced a surplus of $2.1 billion for 2014-15, (again) thanks largely to higher Stamp Duty receipts.
Also, in 2015 the June budget papers warned that Stamp Duty is an “inherently volatile” source of revenue with the real potential of sharp corrections as well as windfall gains. In retrospect there were also interesting predictions that the average annual growth in Stamp Duty could be 4.2% in the four years to 2018-19.
Stamp Duty receipts were predicted to rise from $7.8 billion in 2015-16 to $8.6 billion in 2018-19. This year an earlier pre-budget estimate of current revenue was $8.372 billion, just shy of the 2015 predictions however, again thanks to a strong property markets, the end figure was $9.379 billion.
Stamp Duty revenue from a strong property market saves the day – again, but reform remains an important task.
Stamp Duty and Home Ownership
However, as we note these figures it’s an opportune time to turn to the Stamp Duty Reform Progress Paper. In part this addresses the impacts on the level of homeownership and the impact of property taxes. In other words, affordability.
The report notes that – “home ownership in NSW has declined from around 70% in the 1990s to around 64% today”.
Perhaps it is not a surprise that feedback reported during the public consultancy process shows strong support for ideas and policies that could encourage higher levels of home ownership via lower upfront purchase costs.
It has been seen that the proposed changes to Stamp Duty would remove a key entry barrier to home ownership that would help with long-term entry to the property market.
The Progress Report notes that more than 53% of respondents said the proposed property tax changes would help them enter the housing market.
However, even as we see record amounts of Stamp Duty revenue, there were mixed views regarding how the property tax could impact the ongoing affordability of property in NSW.
Some parties suggested that removing Stamp Duty would cause upward pressure on prices due to an increase in spending power. Other comments noted that the Taxation System was only one factor impacting prices and hence affordability and that currently historically low interest rates was a major driver behind
the current house price surge.
There was also a mixed-bag of other influential factors which include migration, delayed purchases during the pandemic in 2020, serviceability calculations, supply, and demand. In part these factors further underscore the complexities of reform.
None-the-less some economists have agreed that the proposed Stamp Duty reforms would have a positive effect on housing affordability.