First home owners would save money for 60 years with property tax, says NSW government

A first home buyer who opts to pay property tax rather than stamp duty could be ahead financially for 60 years, according to NSW Treasury analysis released before the government’s final push to implement the Premier’s pet policy before the election.

NSW Treasury modelling shows if a first home buyer opted for an annual property fee on a $1.5 million apartment, it would take 63 years before you reach the value of stamp duty that would have been paid in today’s dollars using the upfront fee. For a unit purchased for $1.25 million, it would take 52 years.

New NSW Treasury analysis shows first home buyers could be saving money for decades by opting into a property tax.Credit: Peter Rae

Similarly, for a house purchased for $1 million it would be 23 years, while a unit at the same price would take 43 years, the modelling released by the NSW Treasurer’s office shows.

Premier Dominic Perrottet is eager to ensure his property tax policy, which has a planned implementation date of January 16, passes parliament in the final sitting weeks before the March election. However, it faces fierce opposition from NSW Labor.

Labor has labelled the changes “a forever tax”, and the bill was referred to an upper house committee for a one-day inquiry last week after passing the lower house this month. The committee is due to report back on Friday.

NSW Treasurer Matt Kean said the policy would allow younger people to get a start in the property market without the impost of an upfront payment.

Treasury estimates that half of all owner-occupiers sell their properties within 10.5 years while two-thirds of owner-occupiers sell their properties within 20 years.

“Most people purchase a home more than once during their lives, so it will make sense for many first home buyers to choose a smaller annual fee for that limited period, rather than stamp duty paid upfront in a lump sum,” Kean said.

“This initiative will help many first home buyers get the keys to their dream home sooner but will also result in overall savings in many scenarios.”

The inquiry into the property tax bill received just 13 submissions, however there were several hundred when Treasury released a formal consultation paper into stamp duty reforms in late 2020.

NSW Treasury made a submission to the upper house inquiry, which says the policy is “not expected to have any noticeable effect on dwelling prices”.

However, a submission from the Combined Pensioners and Superannuants Association said the group was concerned the policy “may be about the introduction of a universal property tax in NSW by stealth and small beginnings”.

The Housing Institute of Australia’s submission said it supported initiatives to help home buyers enter the housing market sooner, but it should be the first step in broader stamp duty reform.

First home buyers who opt in to the government’s property tax policy would pay an annual levy of $400 plus a 0.3 per cent tax on the value of their land.

Property tax rates will be indexed so that the average annual property tax payment grows at the same rate as gross state product (GSP) per capita. However, to avoid bill shock, annual increases will be capped at 4 per cent.

NSW Treasury’s analysis was based on the assumptions of 3.2 per cent GSP growth (which is the average over the past 15 years), 5.6 per cent interest rates (the average variable discounted owner-occupier mortgage rate over the same period) and land value of the property rising at the same rate as the average property.

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