From July 1, NSW home buyers will begin to benefit from the previously announced annual indexation of stamp duty thresholds.
The measure, confirmed in the recent state budget, is estimated to save homebuyers around $330 on an average-priced dwelling purchase by 2021.
The property buyer savings will rise over time, especially if inflation gets into a gallop again.
The indexation, although minor, was a worthy reform dealing with bracket creep by NSW Treasurer Dominic Perrottet, who is the first state treasurer to index stamp duty brackets to the CPI.
It however goes only a little way to the emerging issue of the roadblock where those inclined to move instead stay put.
Stamp duty is a tax levied on the purchase of every home, and all state governments have become reluctant to undertake its reform. Stamp duty uses price brackets and rates that rise from 1.25 per cent under $30,000 to 5.02 per cent over $3 million.
The brackets have remained largely unchanged since 1986 despite the increase in Sydney property prices since then from $80,000 to its current near $1 million median dwelling price.
Buyers pay $40,000 on a $1 million purchase.
Economists claim more and more homeowners are thinking home improvement is a smarter strategy than buying elsewhere and paying the onerous stamp duty.
They maintain stamp duty has become a tax regime that holds up housing turnover.
ME Bank head of loans Patrick Nolan first noticed the trend in 2017 with increases in renovation loan applications, as households chose to renovate over moving.
It came with top-up loans as owners took advantage of lower interest rates and leveraged the extra equity back into their property.
A finder.com.au website survey in 2018 calculated a kitchen renovation typically cost $17,000; bathrooms cost $12,000, floors $10,000, new decking $12,000 and a pool $21,000.
Of course, renovations are also done to prepare a property for sale.
The former NSW treasury secretary Michael Lambert has described stamp duty as the most inefficient of NSW state taxes.
Many economists seek a replacement tax based on land values rather than market values of properties which would be payable annually instead of when properties change hands. Treasurer Perrottet is open to further reform but emphasises any change would require the co-operation of the Commonwealth government and all the other states, given issues involving GST funds distribution.
There’s no sign the federal Treasurer Josh Frydenberg and Prime Minister Scott Morrison are prepared to take up the issue at the Council of Australian Governments and bang heads, just as Peter Costello and John Howard did with the GST some two decades ago.
It is a federal issue as there are claims stamp duty impedes employment mobility.
But there are opponents of reform including Cameron Murray, a lecturer in economics at The University of Queensland.
Murray maintains it’s bad economics, not the “holy grail” of tax reform. He says remove stamp duty and prices will rise by exactly the amount of the duty removed.