Stamp duty, one of the most unpopular taxes in Australia, could soon be scrapped in NSW if government plans get the green light. But what will it be replaced by? And would home buyers be better or worse off under the proposed new model?

A “relic from a bygone era”

Currently, stamp duty is one of the biggest upfront costs of buying property in Australia. The amount you pay is based on the property’s market value, calculated under a sliding scale. Stamp duty rates vary from state to state, and whether you’re an owner-occupier or investor.

In NSW, owner-occupiers face an average bill of $34,000 which is payable within three months of settlement. First-home buyers are exempt or receive concessions on the tax if they buy an established property costing less than $800,000 or a newly built home valued at under $1 million.

Critics, including the NSW treasurer, have slammed the tax as “outdated” and a “relic from a bygone era”. That’s because stamp duty rate brackets haven’t been updated since 1985 when the median house price in Sydney was around $73,000.

It’s now just under $1 million.

The “Netflix of property tax”

The NSW government wants to replace stamp duty with, what the Treasurer dubbed, the “Netflix of property tax.” Under their proposals, you’ll be given a choice between paying stamp duty or a smaller, annual property tax based on land value. First-home buyers would get a grant of up to $25,000 instead of an exemption.

There will be no double taxation. So, you won’t have to pay the annual tax if you’re an existing homeowner that’s not planning on moving.

Pros and cons of the annual tax

The government is consulting on their proposal, and some details are still to be ironed out. But, if it does get the go-ahead, the new model comes with both advantages and disadvantages attached.

On the plus side, without the financial burden of stamp duty, more first-home buyers could get on the property ladder. Older people will be more likely to downsize.

However, more buying and selling throughout the market could cause a short-term uplift in property prices. As a result, you may end up paying more for a new home. That could leave you worse off under the annual tax, as you’ll likely pay more in the long run.

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