The NSW Treasurer Dominic Perrottet this week announced a plan to index real estate stamp duty thresholds to inflation from 2019. This means the points at which the graduated duty rates cut in would increase automatically each year without new legislation being required.
Indexation is a good idea in principle and Perrottet is to be applauded for going where no state Treasurer has gone before, but his proposal is but a small step towards correcting the state’s addiction to a flawed tax.
The stamp duty scales have not been adjusted since 1986. Since then the revenue yield from this tax has ballooned from a mere $500 million a year to almost $10 billion at the peak of the recent boom.
Although revenue is now in retreat, this will no doubt prove to be another temporary set-back. Over the long term State governments — Coalition and Labor, and in all states, not just NSW — have enjoyed the revenue ride and have never wanted to do anything to stop it.
The flip side to governments’ addiction is a steadily rising burden on home buyers. As values increase but the transfer duty scale remains unchanged, the percentage of stamp duty in average values goes up. Since 1986, on the median Sydney house price it has roughly doubled from 2% to 4%.
Indexing the stamp duty brackets to the consumer price index would slow the increase in duty as a percentage of average values, but it wouldn’t stop it because house values over time rise faster than the CPI (even if they are falling at the moment). Since 1986, the Sydney CPI has risen by about 170%, but the median house value by 1,000% or more.
Instead of indexing to the CPI, the state government should index to some measure of average property values in NSW, just as they index the land tax threshold to average land values in NSW.
Also, the thresholds are in need of a major increase right now, before automatic indexation starts next year.
12 April 2019 | Ideas@TheCentre
Dynamic modelling of the new tax changes proposed in the 2019/20 budget shows the government should bring forward their long-term tax cuts. Our modelling, published in the paper…
Apparently, the women of Australia were short-changed by the federal budget last week — as it contained “no strategy or vision” for the advancement of Australian women. Indeed,…
11 April 2019 | Financial Review
Since the success of the 1980s and 1990s microeconomic reforms, subsequent governments have attempted to drape their new policy ideas in the language of “reform”. They do this…