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The New South Wales government will attempt to turn around a historic $16bn budget deficit bought on by the Covid-19 pandemic by undertaking a major reform of its tax system.
Handing down his fourth budget on Tuesday, the NSW treasurer, Dominic Perrottet, outlined the devastating toll wrought by the pandemic on the state’s economy, including a $6.9bn deficit in 2019-20, expected to rise to $16bn in 2020-21.
At the height of restrictions introduced to stop the spread of the virus, Perrottet said in his budget speech, the cost to the state’s economy was estimated to be $1.4bn every week. The state’s economy contracted by 8.6% in the June quarter, the worst on record, and almost 270,000 jobs were lost between March and May. The state’s net debt is expected to peak at $104bn by June 2024.
“Sometimes big numbers like that hardly feel real,” Perrottet told parliament after releasing the budget. “But the impact they have had on our people is very real.”
The eye-watering deficit is the result of $29bn Covid-19 stimulus spending – the largest of any state – and a forecast $25bn drop in revenue over the next five years.
To arrest the decline, Perrottet said, the government would phase out stamp duty on new property purchases in favour of an annual land tax. Long flagged by the NSW government, the move could inject an extra $11bn into the state’s coffers over four years.
But it will not happen at once. Rather, the treasurer said, the government would start a public consultation process on a proposal to give homebuyers the choice to opt out of paying stamp duty in favour of an annual property tax. The change would not affect current owners who are not buying or selling property, and the exemption on stamp duty for first home buyers buying a property costing less than $1m would be replaced with a $25,000 grant.
Perrottet said the change would give the state “a realistic pathway to achieving the most important state economic reform of the last half century”.
“Stamp duty is a relic from a bygone era when you picked one career, started a family, bought a home and basically settled in for life,” he said.
“It adds tens of thousands of dollars to the cost of the biggest financial commitment most people ever make. If you want to move, change jobs, or switch careers, upsize or downsize to match your family size, stamp duty can be the spanner in the works. It is holding our economy back at a time we need to be going full throttle.”
The government also unveiled a number of spending initiatives aimed at encouraging growth, including $500m on 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.
The government will also spend $812m to build 1,300 new social houses across the state. A little over half of those will be built in the Sydney metro area.
Another $120m will be spent to provide free preschool to about 44,000 under-fives, and $337m to provide tutors for school students who had their learning disrupted during the Covid-19 lockdown.
Perrottet told parliament low interest rates meant it was a “golden opportunity” for the government to spend.
“Doing nothing would inflict long-term damage on future generations, and we won’t let that happen,” he said.
“Our stimulus will be unprecedented in scale and quality – tenaciously targeted to generate jobs.”
The government also announced new spending measures on infrastructure projects, including $10.4bn over the next four years on the Metro West underground program and $9.2bn on a new metro line to the new western Sydney airport.
The new spending measures were welcomed by business groups. The executive director of the Sydney Business Chamber, Katherine O’Regan, said: “This big spending budget puts Sydney in a strong position to lead the nation’s economic recovery, with funding for big transport infrastructure projects and other job creation and investment drivers.”
But unions renewed their criticism of the government’s previously announced decision to cap wage increases of frontline workers, including nurses and paramedics, at 1.5%.
Source: The Guardian
Keyword: NSW budget: deficit to hit $16bn as treasurer unveils plan to replace stamp duty with annual property tax | Australia news