The New South Wales government has announced changes to what’s been dubbed “bracket creep” on the state’s stamp duty on property.
The changes to the seven price brackets of stamp duty will come into effect from July 2019 and will index the levels to inflation.
Stamp duty in NSW is currently levied in a similar fashion to income tax, starting at 1.25% on the first $30,000 of a property’s value, with the tax increasing to 3.5% above $80,000, 4.5% above $300,000, 5.5% above $1 million and 7% above $3 million. There are seven thresholds.
The top rate means an effective stamp duty rate of 5.02% above $3 million and with the median house price in Sydney increasing 150% over the last 15 years from $400,000 to just over $1 million, it means the average stamp duty buyers pay has rise from 3.37% to 4.05% in that time.
The current scheme has been unchanged since 1986. NSW Treasurer Dominic Perrottet says that if his change had been in place back then, then the stamp duty on a $1 million property would now be $8,000 less.
The Berejiklian government says its change will save home buyers $500 on the average sale by 2021, with the saving, compared to the current static regime, to increase over time. While the proposed change will reduce the impact of “bracket creep”, it won’t eliminate it if price growth rates remain above inflation.
A $1 million property currently attracts around $40,000 in stamp duty. The changes will mean a buyer saves around $300 in 2021.
“Over time this reform will provide substantial savings,” Perrottet said.
Sydney’s property boom has also been a revenue boom for the government helping deliver large budget surpluses in recent years.
The 2018-19 NSW budget estimated stamp duty would generate $5.6 billion in revenue from residential sales, although Sydney’s cooling property market means they figure has been cut by 10.9% compared to the previous year.
And while the indexation change announced today will cost the state budget a modest $185 million over three years, it’s a minuscule figure compared to the budget’s revenue estimates for stamp duty, which are expected to fall by around $6 billion between FY18 and mid-2021.
The state’s revenue was already $1 billion below previous budget estimates as a result of falling property prices.
Corelogic estimates Sydney prices have fallen 8% since reaching a peak in July 2017, a figure roughly in line with the NSW government’s budget estimate of a 7.5% fall.
The NSW government faces a state election in March 2019.