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NSW land tax plan to reboot market in home affordability push

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A key state has opened the door to a radical tax overhaul to ease the cost of new housing, raising the prospect of scaling back ­onerous stamp duties and ­imposing land taxes in order to free up more homes for a new generation of buyers.

Highlighting the scope for ­national reform, NSW Finance Minister Dominic Perrottet has declared there is “no doubt” that moving from stamp duties ­towards broad-based land taxes would encourage property transfers, relieving chronic pressures on the market.

But states are at odds over whether to proceed with a far-reaching switch that is strongly backed by economists. Queensland Treasurer Curtis Pitt ­declared there was “no serious proposal”, his South Australian counterpart Tom Kout­santonis said there was little community support for the change and West Australian Treasurer Mike Nahan said the idea was “not practical”.

The political risk from property tax reform has become ­apparent in the ACT, where ­annual rates have risen about 30 per cent over the past five years to allow for a cut in stamp duty. A similar increase in NSW would see the annual tax on an investment property with land value of $1 million rise from $8288 a year to $10,774 a year. Under the current tax regime, owner occupiers do not pay land tax.

 

Stamp duty remains a major disincentive to property turnover. The stamp duty on the purchase of a $1m property is about $40,500.

NSW Planning Minister Rob Stokes released figures last week that showed, while Sydney had a shortage of 100,000 homes, the number of unused bedrooms was the equivalent of 20 years of housing supply. In NSW stamp duty is ­expected to raise $8.7 billion this year, while land tax will raise $3.1bn.

The NSW comments come as the federal government steps up work on housing affordability today, promising help to states that can unleash new construction in areas close to mammoth infrastructure projects. The Turnbull government is turning its focus to urban renewal around existing transit hubs, ­arguing that the national effort to build more homes should be ­focused on areas with efficient transport.

Malcolm Turnbull insisted yesterday that planning restrictions were to blame for supply ­issues and for driving up prices, but Labor accused him of fuelling speculation over policy options in the growing political dispute over housing affordability.

Mr Perrottet backed warnings from Scott Morrison this week about the link between affordability and the supply of new housing, while acknowledging that tax reform could help fix the problem. “On the tax side of things we should be open to reform,” he said. “If you reduce stamp duty and had a broad-based land tax we would encourage the transfer of property, there’s no doubt about that.

“You have retirees living in these five-bedroom homes by themselves while there are people with three children trying to buy into the property market.”

A cut to stamp duty would remove a barrier for homeowners who are thinking of downsizing, helping to free up the supply of existing homes on the market and increase overall liquidity.

The Henry tax review urged a shift from stamp duties to land taxes in 2010 but only the ACT has embraced the idea. Deloitte Access Economics director Chris Richardson warned earlier this year that buyers were paying “over the odds” as a result.

Australian National University professor and former Reserve Bank board member Warwick McKibbin backed the idea, saying stamp duty was a less efficient tax than land tax and the transition should help with housing affordability.

Federal Assistant Minister for Cities Angus Taylor will today outline plans to tighten links between infrastructure projects and new housing so Australians can live in “30-minute cities”, close to jobs, schools, services and transport. “Another part of the solution must also be to make better use of our existing transit hubs,” he will say, according to a draft of his speech to the Housing Industry Association.

“Travelling across each of our major cities, it is clear that their transit hubs ... present an early opportunity for reform.”

The federal view is that Sydney locations such as Central, Redfern, Strathfield, Liverpool and Campbelltown offer opportunities for more homes close to transport, along with locations such as Bayswater in Perth and the Melbourne areas of Box Hill, Dandenong and Glen Waverly.

The ACT plan to increase land tax steadily to ease stamp duty has been politically contentious. But the territory’s Labor government won this month’s election against a Liberal campaign focused on rates.

Any NSW move to increase land taxes would see homeowners pay more each year. An investment home with land value of $610,000 incurs land tax of $2148 but this would triple to $6444 in any theoretical move to replace stamp duty with land tax completely.

NSW Treasurer Gladys Berejiklian said: “We have always said we are open to further tax reform, including looking at stamp duty. But we believe the most effective way of tackling housing affordability is to increase supply.”

Mr Perrottet’s comments, at the Centre for Independent Studies, came as new figures showed revenue from stamp duty was falling because of a reduction in property sales. Figures for the first three months of the financial year show revenue from stamp duty was down by about 10 per cent on the same period last year.

If the trend continues, this will create a $900m hole in the budget, which predicted that stamp duty would rise by about 4 per cent this year, and continue to rise over the following three years.

Other states were cautious about a sweeping reform. In South Australia, Mr Koutsantonis said the state had already abolished stamp duty on non-residential property and plant and equipment for businesses after a review.

West Australian Treasurer Mike Nahan warned against a big transition from one tax to another.

“Western Australia would need to significantly increase its current land tax rate to abolish transfer duty. This is just not practical,” Mr Nahan said.

The Queensland government said the shift from stamp duty to land tax was not an idea being entertained. “I think people are growing tired of thought bubbles being floated … like lifting the GST or implementing a state income tax, only for the Turnbull government to immediately take their proposals back off the table again,” Mr Pitt said.

Victoria declined to comment

 

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