Will Victoria do away with Stamp duty like NSW?

July 4, 2022

The NSW government has announced a radical overhaul of its property tax regime. The overhaul has the potential to boost housing affordability by giving homebuyers the option of paying an annual housing tax instead of an upfront stamp duty. But exactly how would this work and why does it need a change?

Currently in Australia we are experiencing a housing shortage with many home owners choosing to stay put rather than sell and move, in particular from large family homes. In an attempt to incentivse people to move more frequently the government is proposing to change the large lump some payment of stamp duty to be paid as a yearly payment based off your property value similarly to your annual rates.

The Northern Territory is already well into their 20 year phase out of stamp duty and NSW looks poised to follow suite which will no doubt put pressure back onto other states to make a similar choice.

Stamp duty has been criticised by many economists as a grossly inefficient tax. It has also been blamed for exacerbating the housing affordability crisis, discouraging people from moving or downsizing and adding a layer of unpredictability to state budgets.

Under the NSW plan, to be announced in the June 21 state budget, the option of replacing stamp duty with an ongoing land tax will not apply to the top 20 per cent of homes by sale price to help limit the expected drop in the government’s revenue. Although past buyers would not be affected, the move to a land tax would be permanently linked to the property. That means future owners would need to pay land tax if previous owners had opted in.

A survey of 1000 people conducted by the institute last October found that 43 per cent of respondents with a mortgage thought the removal of stamp duty would make housing more affordable.

Last financial year, the Victorian government raked in about $6.4 billion in stamp duty, equivalent to about 27.2 per cent of the state’s total tax take. The NSW government raised $9.4 billion in stamp duty, or 28 per cent of the tax total.

The NSW government has estimated that, once introduced, an optional annual tax would collect about 20 per cent less revenue, which equates to a projected shortfall of about $2.5 billion a year. In Victoria, the figure is thought to be close to $2 billion.

It will be interesting to watch this space and if Victoria will follow NSW and remove stamp duty.

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