New South Wales is forecast to record an historic $16bn budget deficit this financial year while the state’s treasurer, Dominic Perrottet, embarks on what he has called “big and bold” tax reform that will see stamp duty phased out in place of an annual land tax.
Perrottet delivered his budget speech in parliament a little while ago, unveiling some eye-watering numbers on the back of the Covid-19 pandemic. At the height of NSW restrictions, Perrottet said, the cost to the state’s economy was estimated to be $1.4bn every week.
“Sometimes big numbers like that hardly feel real,” he told the parliament. “But the impact they have had on our people is very real.”
The state’s economy retracted by 8.6% in the June quarter, the worst on record, and almost 270,000 jobs were lost between March and May. In 2019-20, the state recorded a budget deficit of $6.9bn. That is expected to rise to a record $16bn in 2020-21. The state’s net debt is expected to peak at $104bn by June 2024.
But Perrottet sought to strike a positive note too. In the four months to September the state added almost 175,000 jobs, and retail spending was actually up 10% on last year in September.
Some of the big spending items you have already heard about. The government will spend $500m on what it has called an “out and about voucher”, which will give every adult in the state $100 to spend on eating out or visiting cultural attractions in the state.
But Perrottet also announced the government would invest $812m on new social housing in the state, $120m to provide free preschool to about 44,000 three to five-year -olds, $337m to provide tutors for school students who had their learning disrupted during the Covid-19 lockdown and $192 million to implement recommendations from its bushfire inquiry.
The main reform though is Perrottet’s changes to the state’s tax system. Rather than the immediate scrapping of stamp duty on home buyers, the government will begin “seeking feedback” on a proposal that would give home buyers a choice to “axe stamp duty at the point of purchase and choose an annual property charge instead”.
There would be no impact unless you are purchasing a property and you make the choice to change. For everyone else, everything stays the same.
This model would give NSW a realistic pathway to achieving the most important state economic reform of the last half century.
Perrottet, who has long made no secret of his desire to get rid of stamp duty, called it “a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life”.
