A proposal by the NSW government, which could see a major overhaul of the tax system, has been welcomed by industry experts. The NSW Review of Federal Financial Relations released its draft report called Supporting the road to recovery, on Wednesday, 1 July, with 15 recommendations, following an order for review from NSW Treasurer Dominic Perrottet.
“The GST is important in these considerations as it is the largest source of funding for frontline state services, but its broad exemptions are causing the revenue pool to shrink relative to the size of the economy,” the report stated. “There is a strong case for reforming the GST and reducing our reliance on more harmful taxes such as Stamp Duty and Payroll Tax while redirecting a portion of revenue to lower-income households so they do not bear the burden of reform.”
The Review has recommended either increasing the GST rate above 10% or broadening its base to include the currently exempt areas of fresh food, education and health. In return for a higher rate of GST which is shared with all the states based on a formula, ineffective taxes such as Stamp Duty and Payroll Tax would be removed.
Under the recommendation, to be delivered to the federal government, Stamp Duty would be replaced with a broad-based land tax, with the report noting that it would increase first home buying and could help with housing affordability.
The tax, which is one of NSW’s largest raisers of funds, would initially be opt-in under a lengthy transition period, allowing buyers to pay Stamp Duty once or Land Tax annually. The Real Estate Institute of Australia welcomed the draft report of the independent NSW Review of Federal Financial Relations.
Taxes are one of the factors determining investment in housing and thus housing supply and housing affordability. The housing sector is one of the most heavily taxed sectors of the Australian economy, both in absolute and relative terms,” REIA stated.
“There are many earlier studies that reinforce the findings of this report that abolition of the inefficient taxes such as Stamp Duty will bring economic and social benefits, including assisting housing affordability by reducing the major initial transaction costs of buying property.
A notable earlier review, the Henry Review, said Stamp Duty on conveyances is inconsistent with the needs of a modern Tax system and should be replaced with a more efficient means of raising revenue.
“The NSW government raised around $7 billion, or 24 per cent, of annual tax revenue from transfer duty in 2018-19, making it the state’s second-largest source of tax revenue. Only Victoria raises more as a share of state taxation,” the report found.