REINSW says NSW Government should back RBA interest rate action by cutting stamp duty to kickstart sluggish property market.
In the wake of the RBA’s decisive action to shock the economy into a higher gear, the NSW Government is being called on to do its part to kickstart a sluggish property market.
And in a bold plan, the government is being urged by REINSW to cut transfer stamp duty not just to increase sales activity but also to increase government revenues.
REINSW says a cut to transfer stamp duty rates of as little as 0.5% could boost state revenues by hundreds of million dollars through aggressive stimulation of the property market; a move that has been proven to work elsewhere in Australia.
The plan is based on focused research on reductions in property transfer taxes in Western Australia, the Northern Territory and New South Wales that resulted in sharp increases in government revenues as a result of a dramatic escalation in property transactions.
“The Reserve Bank’s recent action is a clear sign that the economy has entered an uncertain phase and is in need of urgent stimulation,” said REINSW.
“What we need in NSW is equally decisive and innovative action from the State Government to not only increase property transactions, but also to protect state government revenues.
“We know from the bitter experience of the vendor duty that when you raise property transfer taxes you get a decline in government revenues (see tables).
“In NSW, a 2.25% vendor duty resulted in a loss of over $1 billion in transfer duty in the only full year it was in operation. Importantly, in the first full year after the removal of the vendor duty, transfer duty went up by over $1 billion.
“Between 2003 and 2006, Western Australia cut property transfer duties by 0.9% yet related revenues rose by more than $709 million over the same period, simply because the cut stimulated in the market.
“Similarly in the Northern Territory, property transfer duty rates were cut by 0.45% which resulted in an increase of more than $22 million in related revenue.
“Put simply, increasing taxes means less money for government, decreasing taxes means more money for government!
“While the cut in official interest rates is welcome, stimulation of the property market can’t just be left to the Reserve Bank.
“The NSW Government needs to heed the warning of declining property transactions which is cutting into state government revenues now and in the future.
“Between 2003 and 2011, total dealings have fallen by more than 289,000 despite an increase in population.
“Our plan to cut transfer duty is a proven model to protect government funding sources and at the same time, light the badly needed spark to get the property market really moving again.
“The evidence is clear that additional stimulation of the market is generated by an easing of property transfer duty rates, providing greater incentives for buyers and at the same time, protecting revenue streams for government.
“The global economy remains in a dangerous phase and the impacts on Australia and NSW are uncertain.
“What we learnt from the GFC Mark I is that it was only innovative and coordinated policy action by governments across Australia that helped sustain and invigorate the property sector, which is the engine room of the national economy.
“Already we have seen the Reserve Bank take immediate and urgent steps to cut interest rates in order to stimulate activity.
“These cuts need to be reinforced by additional and wide ranging policy responses such as our Stamp Duty Plan,” said REINSW.