NSW Budget 2021: Property Market to Peak at End of Year
Published 6:48 am 20 Jul 2021
Stamp duty from the booming property market has cut the state’s projected deficit in half.
It’s no secret that Australia’s property market is thriving, and now the 2021 NSW budget is enjoying the benefits of the boom.
Stamp duty generated $9.379 billion for the 2020-21 financial year, making it the number one source of tax revenue in NSW. The revenue from stamp duty was over $1 billion more than predicted, and helped to cut budget deficit projections in half.
Initially, the November budget projected a $16 billion deficit, but yesterday the budget deficit was revealed to be just shy of $8 billion – in large part thanks to stamp duty revenue.
This year’s stamp duty revenue was significantly larger than recent years with only $7.4 billion in stamp duty revenue generated throughout 2018-19, and $6.95 billion generated in 2020 in the midst of the pandemic.
With overseas travel off the table for 2021 and the labour force returning to pre-pandemic unemployment levels, many Australians are using their additional savings to purchase property and capitalise on record-low interest rates.
The effect on the property market has resulted in high auction clearance rates, rising average property prices, and now, a spike in stamp duty revenue for the NSW Government.
The budget speculates that New South Wales’ booming property market will reach a peak toward the end of the year, as increasing prices push buyers out of the market.
“Annual house price growth is expected to peak around late 2021. As higher prices encourage more owners to sell, this will work to limit house price growth over time.”
“In addition, higher prices are expected to price out more potential buyers, weighing on demand,” the budget said.
Despite the enormous fiscal benefit provided by stamp duty revenue, the NSW government continues to remain committed to phasing out stamp duty, having identified the tax as “one of the biggest financial barriers to home ownership” in Australia.
Instead, the NSW Government is considering providing homebuyers with the option of either paying stamp duty upfront, or paying an annual property tax when purchasing their next home.
Given that the median house price in NSW is now sitting above $1.3 million and continuing to rise, eliminating stamp duty could save Australians tens of thousands of dollars when purchasing property. In turn, this may lower the financial barrier to entry for first home buyers, beyond the stamp duty concessions available currently.
“While stamp duty might be the number one revenue source the New South Wales budget receives, it doesn’t make good tax,” said NSW Treasurer Dominic Perrottet.
“The worst thing about stamp duty is that it stops many young families from getting into the property market,” the treasurer continued.
“We need to look at better ways of doing things and the Government shouldn’t just rely on rivers of gold from volatile taxes.”
The property tax proposal drafted by the NSW Government estimates that phasing out stamp duty could inject $11 billion over four years into the economy by providing “much needed stimulus in the current downturn.”
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