For a policy that had done the media rounds when it was first put forward in the June Budget, NSW Premier Dominic Perrottet’s “affordability busting” land tax proposal for first home buyers garnered a lot of attention in the past week or so.
Not surprising with the government’s four-year term coming to a close and an election in the wings. Reform is difficult at any time but when it’s close to an election the debate is inevitably more about the politics than the substance of the policy.
There is just an edge of desperation in the government’s determination to see their First Home Buyer Choice legislated by January. And considering that they’ve been promoting the scheme as a done deal for some time, that’s not surprising.
Granted, the fine print on the website introduces the word “intends” but that hardly counters the bold assertion that precedes it: “The NSW Government has announced that first home buyers purchasing properties for up to $1.5 million will be able to choose to pay an annual property tax instead of stamp duty.”
Nothing new in political hyperbole but first home buyers taking the government at its word and counting on having their stamp duty refunded for any purchase since June will be mightily disappointed if the legislation isn’t enacted by January.
But what of the substance of the policy?
The scope of this legislation falls far short of Perrottet’s reformist zeal when as treasurer he announced his intention to shift NSW away from a bad tax, stamp duty, to a good tax, broad based land tax.
Having filled the State coffers with the proceeds of a booming property market, he was at the time staring down the barrel of a massive Budget deficit brought about by having to spend our way out of the pandemic together with the property market stalling back in 2020.
We know what happened shortly after, as property prices hurtled on a perilous upward trajectory only to suffer its current reality check.
What that, and previous boom-bust cycles underlined, is the need for a more reliable source of revenue to pay for government services, not reliant on consumer habits.
The economic case for a broad-based land tax is obvious, the public appetite less so.
What we have ended up with is a half-baked reform that applies only to first home buyers and gives them the choice of paying up-front stamp duty or signing up for a land tax, applied to properties up to the value of $1.5 million.
It’s commendable that the upper limit has been raised to address the reality of Sydney house prices and many regional cities and lifestyle destinations.
With the average age of first home buyers now 36 it’s unrealistic to suppose that a $650,000 one-bedroom apartment is going to meet the housing needs of a young family.
It may be imperfect but there is no doubt that removal of stamp duty is a boon for first home buyers. The first home is the hardest one to acquire yet we see the proposal derided by the Labor opposition as a “forever tax”.
The reality is that very few people live in their home “forever”. A NSW Treasury report published in April this year examined the length of time properties were held before being sold, finding the median holding period of NSW properties was 9.7 years.
Cumulatively, half of all purchasers selling their dwelling within 9.7 years, 60 per cent within 21 years and 80 per cent within 35 years. Owner-occupiers have a median holding period of 10.5 years and investors 8.8 years.
Given the high likelihood that the property will be sold before the payment of land tax equivalent to stamp duty, it can hardly be described as a forever tax.
With some justification, Labor is looking to the next election with optimism and it would be a loss for everybody if they wedge themselves into an anti-reform position for the sake of landing a political blow in the lead-up.
