NSW mulls replacing Stamp Duty with yearly tax, but it could cost more in the long run

New South Wales is looking to transition its property tax away from a lump sum payment the size of a car to a yearly payment, in a move that would be the biggest change to the revenue maker in 155 years.

The average homebuyer in NSW pays $35,000 on stamp duty, according to the state government, requiring people to save on average two-and-a-half years on top of their housing deposit.

But under a proposal announced by Treasurer Domininic Perrotet last night, the dated lump sum could be replaced with an annual tax.

“Stamp duty is a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life,” he said.

“If you want to move, change jobs, or switch careers, upsize or downsize to match your family size, stamp duty can be the spanner in the works.

“Our proposal would give more people the opportunity to own their own home, and more freedom to live in the home that’s right for them.”

Cheaper over the short term, but more expensive in the long run

The median price of a residential unit in Sydney was $735,350, according to CoreLogic’s November data. A buyer could make a one off payment of $28,428 on stamp duty, or make an annual payment of $2706.05.

After about ten years, the cost of the proposed property tax would be more expensive than stamp duty.

The median price of a residential house in Sydney was $993,927. A buyer could pay stamp duty of $40,065, or an annual tax of $3481.78.

But after about 11 years, the cost of property tax would be more than stamp duty.

How property tax would be calculated. Source: NSW Government

No pressure to switch, but if you do there’s no going back

Homeowners get to pick if they pay stamp duty or property tax -- but if they make the switch there’s no going back.

Even if the property’s sold.

“Once a property is subject to the property tax, subsequent owners must pay the property tax,” the NSW Government said.

A threshold limiting the number of properties initially eligible to switch will be in place, the NSW Government said, but more than 80 per cent of residential properties should be able to opt-in from day one.

The trouble with stamp duty

Less people are able to afford to buy a property today than they could 30 years ago.

While the average income has trebled since 1990, home prices have increased five-fold and stamp duty has gone up by a factor greater than seven, according to the NSW Government.

The result: home ownership has declined from 70 per cent three decades ago to 64 per cent today.

Eliminating the lump sum of stamp duty would require people to save less money in order to buy a property, Adrian Kelly said, president of the Real Estate Institute of Australia, but he doesn’t believe other states should adopt a bolder approach.

“Stamp duty removal is particularly imperative for first home buyers as well as empty nesters and downsizers,” he said.

“... Whilst reforms in the NSW Budget may prove to be a promising start, replacing one tax with another does not solve the long-term problem Australia’s property market is facing.”

A survey of 700 people conducted by Gateway Bank found removing the barrier of stamp duty would help 63 per cent buy a property about 20 months earlier.

“While the NSW Government is proposing to replace stamp duty with a property tax, many first home buyers would be encouraged by any measure providing full or part relief from this upfront, one-off, cost,” Lexi Airey said, chief executive of Gateway Bank.

The proposal to replace stamp duty with a property tax is currently open to consultation, a process where the public can offer feedback.

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