New economic modelling released by the NSW Business Chamber, the state’s peak business organisation, and the NSW Council of Social Services, shows that replacing stamp duty on property with a broad-based land tax could boost the New South Wales economy by up to $5 billion.
Prepared by KPMG for the NSW Business Chamber and the NSW Council of Social Services, the latest report in the Thinking Business
series, Taking on Tax: Reforming NSW Property Taxes
, demonstrates that abolishing stamp duty on property transfers and gradually introducing a broad-based land tax could increase Gross State Product by more than 1 per cent and create up to 10,000 jobs.
"The NSW Business Chamber, together with the NSW Council of Social Services and the NSW branch of the Australian Manufacturing Workers Union, is calling on the NSW Government to put property transfer taxes at the top of the tax reform agenda – to not only make buying a home more affordable, but to create jobs and promote economic growth,” said NSW Business Chamber Chief Executive, Stephen Cartwright.
“Business, unions and the community sector have found common ground on the urgent need to abolish stamp duty in favour of a more efficient system of tax; it is now time for the NSW Government to put stamp duty on the table if it is genuine about tax reform.
“Stamp duty revenue is expected to grow to $8.7 billion in 2015-16 off the back of Sydney’s booming property market, which is more than double the average annual amount collected by the NSW Government in the previous decade.
“A homebuyer would have to pay more than $41,000 in stamp duty costs when purchasing a house priced at the Sydney median which is now more than $1 million. This acts as a massive disincentive for people to buy and sell property, which affects labour mobility and weighs on economic activity.
“In 2010 you would have paid just over half that in stamp duty, or $24,000 for the median‑priced house. There is no compelling reason why a family should now pay the Government $17,000 extra, particularly with housing affordability approaching crisis levels.
“By distorting buyer behaviour in the property market and limiting the ability for skilled workers to re-locate to meet employer demand and live closer to where they work, the exorbitant cost of stamp duty in NSW puts employees and businesses at a competitive disadvantage and harms the long term growth prospects of the state economy.
For example, a broad-based land tax, implemented gradually, would help address housing affordability in NSW by reducing the upfront costs of home ownership and making it easier for households to move as their needs change over time.
“Although NSW already has a land tax system in place, the current system is ‘narrow’ and does not apply to owner‑occupied land. Under this proposal, a ‘broad’ land tax would apply to owner‑occupied land
“While the potential $5 billion boost to the State’s economy is only realised on the wholesale replacement of stamp duty with a broad-based land tax, even small steps towards a re-designed land tax would be extremely beneficial for both business and the broader community.
“Stamp duty is one of the most inefficient taxes in the tax system; in fact, Commonwealth Treasury modelling suggests that the economic cost of collecting an additional dollar of revenue through stamp duty on property is 72 cents in the dollar, compared to 19 cents for the GST and virtually zero for a broad-based land tax.
“While more work needs to be done to determine how a re-designed land tax would be implemented; this modelling makes it clear that stamp duty is simply not serving the people of NSW.
“This is not an opportunity for the Government to lock-in a higher overall tax burden, but to create a more efficient tax system that ensures NSW remains Australia’s leading state in which to do business.
“At the very least, action is needed to reduce the amount of stamp duty paid by NSW households to more normal levels. If the Government does nothing to rein in stamp duty, the problem will only get worse.
“In the end, over the longer term, the NSW Government needs to find a more efficient tax that generates the revenue needed to deliver infrastructure and services to the people of NSW without distorting personal and business decisions and acting as a handbrake on economic growth,” Mr Cartwright said.