At the time of this write up, the New South Wales (NSW) State Government is looking to bring in the United States (US) property tax to phase out stamp duty and land tax. The current system of the state property taxes consisting of stamp duty and land tax is not perfect but has the following concessions. In stamp duty, there are concessions for first home buyers. In land tax, there are the exemptions for a principal place of residence, primary production farmland, church/religious, charity and retirement/aged care properties. Strata investment unit owners do not pay land tax if under the current land tax threshold.
The NSW Government wants to bring in the US style property tax to make all property owners, buyers and investors to pay the property tax across the board, as a perpetual tax on property, calculated and paid in a similar approach to local council rates, with no exemptions or thresholds in the current property tax proposal. It will be the biggest change in over 30 years on state-based property taxes.
A broad-base property tax proposal of 2021 has the same markings of the broad-base GST proposal of the 1990s. Remember Dr John Hewson, who said, "GST stands for Goodbye Seven Taxes". That did not happen when John Howard with Peter Costello came into government in the late 1990s, who did a deal with the Australian Democrats in the Senate for the seven taxes to remain, forcing exemptions to basic items in grocery stores, health, and education. The property tax proposal in the current form, also has the same markings of the un-popular Vendor Exit Tax brought in by Bob Carr and Michael Egan when in state government. When the Vendor Exit Tax was brought in, both Bob Carr and Michael Egan quickly exited, with the Vendor Exit Tax quickly dumped by new Premier Morris Lemma soon after he was elected Premier.
In the Progress Paper (June 2021) on the property tax, it reads, "The NSW Government wants to help the people of NSW achieve the Australian dream of home ownership and grow the NSW economy". In a reality check, the NSW Government wants a broad-base property tax to get all property owners, buyers and investors in one net to pay this tax to beef up the state revenue coffers. From the US experience, the property tax rate increases every time the US state government budget is in trouble.
Other concerns on the proposal include various tenants' groups having grave concerns that landlords will pass the property tax on to the tenants to pay. In a recent survey of NSW Farmers Federation members, 70% prefer the current system to remain and not to bring in the property tax. Commercial property landlord owners, who are hard hit on land tax, could be paying more in the property tax. Many strata investment unit owners, who are currently not paying land tax under the current land tax threshold, will start paying the property tax. Religious, charity, and aged care property owners, who are currently exempt from land tax, will also pay if the system changes.
The property tax proposal is also yet to address foreign surcharge buyers, who in the current system, pay more in stamp duty and land tax. The property tax proposal raises concerns that it is broad based, perpetual and would go up every time the state government's budget is in trouble.