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

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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 per cent of that from residential sales. After payroll tax, stamp duty is the biggest source of taxation revenue for NSW.

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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 per cent 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 home owners, contribute to labour 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.

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