NSW to offer $25,000 grant for first home buyers in stamp duty overhaul

First home buyers would get a $25,000 grant to help them enter the market as the NSW government moves to overhaul property tax at the same time as homeownership for people under 40 plummets.

A grant would replace existing stamp duty concessions for first home buyers under the property tax reforms, which would initially allow buyers to choose to pay stamp duty or an annual levy.

NSW Treasurer Dominic Perrottet announced his plan to scrap stamp duty and move to a land tax in last year’s state budget, although it will not feature in next week’s budget as consultation continues.

Instead, the government has released a progress paper, which says the proposed reforms could see homeownership rise 6 percent, allowing 300,000 more NSW residents to buy a home.

It coincides with the government’s intergenerational report, which shows 60 percent of people born between 1942 and 1951, so-called early baby boomers, owned homes by the ages of 25 to 34.

However, for people born between 1982 and 1991, this has dropped to just 45 percent.

Mr. Perrottet said the intergenerational report contained a “very stark statistic”.

“The message which comes through very clear again and again is the huge challenge of achieving homeownership for our younger generations,” Mr. Perrottet said.

House prices in Sydney rose 3.5 percent last month, one of the biggest monthly gains since the late 1980s,?CoreLogic figures show, putting renewed pressure on the state and federal government to address housing affordability. Sydney’s median house price now exceeds $1.1 million.

The progress paper says there were “mixed views regarding how the property tax could impact the ongoing affordability of property in NSW” and whether abolishing stamp duty would “cause upward pressure on prices due to an increase in spending power”.

In its submission, progressive think tank the McKell Institute said: “The introduction of the property tax may place upward pressure on house prices in the short term but the reduction in stamp duty costs will still result in a net positive effect on housing affordability.”

The progress report says “lower up-front costs are expected to particularly benefit first homeowners who have typically had less time than other purchasers to save for a deposit”.

Stamp duty raised $8.3 billion for the state’s coffers last year, with about 75 percent of that from residential sales. After payroll tax, stamp duty is the biggest source of taxation revenue for NSW.

The government says the reforms would reduce its revenue but “over the longer-term, the property tax would be revenue-neutral, collecting the same amount of revenue as stamp duty and land tax”.

Under the proposal, the government would legislate to ensure nobody would be required to sell their home if they could not afford the property tax.

To ensure residential rents would not be affected by the reform, the government would request the Independent Pricing and Regulatory Tribunal (IPART) provide quarterly monitoring reports.

Mr Perrottet estimates up to 50 percent of NSW properties will be subject to the annual levy within 20 years and that stamp duty on property purchases would be completely phased out by 2050.

Former federal Treasury secretary Ken Henry said the property tax proposal was “just the sort of innovative policy change needed to improve both economic dynamism and fairness”.

Dr. Henry chaired Australia’s Future Tax System Review, known as the Henry Review, which was released in 2010 and recommended replacing stamp duty with land tax.

“It will improve housing affordability, especially for first homeowners, contribute to labor mobility and reduce the volatility of the state budget over time,” Dr. Henry said.

“I hope that the leadership being shown by NSW might ignite a broader interest in tax reform that is very much overdue.”

However, the NSW Opposition’s Treasury spokesman, Daniel Mookhey, said the government had not yet proposed any formal model, and it was clearly not going to be included in next week’s budget.

SOURCE: https://gdevelopments.com.au/