In his budget speech, Mr Perrottet announced an expected surplus for 2018-19 of $802M, and average surpluses of $1.7B each year to 2023.
He confirmed there would be no new taxes and relatively modest tweaks to stamp duty and payroll tax.
The aim is to fund stamp duty cuts to help first home buyers, indexing stamp duty to make housing more affordable for the next generation and further payroll tax cuts to drive investment and boost small business as the threshold lifts to $900,000.
The 2018-19 budget projects residential prices falling by 7.5% from their peak in 2017, with positive price growth resuming in 2019-20 and stabilising at an annual growth of 3.5% from around the middle of 2020.
The budget projections assume that there will be significantly fewer transactions in the projection period that incur the foreign investor surcharge transfer duty.
The number of first-home buyers has also surged, which tends to reduce transfer duty revenues because of the stamp duty relief available to these purchasers.
KPMG’s research indicates that between 2004 and 2017, the change in the effective rate of stamp duty has contributed about 1.2% to annual growth in transfer duty revenues in NSW (which averaged just under 10% per annum).
This is an important but relatively small component of growth in transfer duty revenue. However, a significant fall in stamp duty and GST revenues has prompted the New South Wales Treasurer to announce an expert panel to review State/Federal financial relations.
The view is that NSW is subsidising other States by receiving a disproportionate share of the revenue.
Key questions
The key questions are the scope and outcome of the review. If the review is from the State’s perspective, then it appears unlikely it would consider reforms to State taxes such as a reduction in stamp duty or substitution of current State taxes with a broad-based land tax.
The outcome is also unclear – will any recommendations given by the committee be implemented where the Commonwealth government is not participating in the review? Will politically unpopular moves, such as an increase to the rate of GST or an expansion of the GST base be considered?
The core problem that remains is the reliance on raising revenue through stamp duty, which is extremely volatile and difficult to predict. Cooperation between the State and Commonwealth governments would be required for the review to have the greatest impact. A context of broader tax reform would be productive.
When it comes to payroll tax, the current payroll tax threshold will progressively increase from $850,000 to $1M by 2021-22. The first year increase is to $900,000.
For small businesses in Greater Western Sydney, this is good news, particularly at a time of great expansion in the area. GWS accounts for 25% of NSW’s GDP and has the highest population growth rate in any State, projected to increase from almost 1.1 million people to over 1.7 million people in 2036.
This creates great opportunity but also the need for businesses to transform and operate in a larger environment and become globally competitive. Minimal changes to taxation will assist this.
At this time of growth, businesses need to consider how they will harness this potential, particularly as economic forecasts predict that the boom in GWS is likely to last for up to two decades.
Construction has slowed but there are signs that the worst is over and approvals for new dwellings and offices are increasing. Meanwhile, infrastructure spending is expanding exponentially, including projects such as the NW Metro, Western Sydney International airport and Aerotropolis,
The Aerotropolis is estimated to support 200,000 jobs in the next 20 years. The airport will also support an estimated 11,000 direct and indirect jobs during construction and an estimated 28,000 within five years of opening. It will also create more connectivity in GWS which brings further opportunities for small businesses to reach out and create new markets.
Penrith, Parramatta and other cities in the region will also expand in consequence, attracting new jobs. More people will want to live in GWS, which will breed new leisure industries.
Simultaneously, many family businesses in the area should look at how they can expand, sell, or set up for the future by putting strong structures in place to transition businesses to the next generation.
This relative “business as usual” budget will instil more confidence in the marketplace and hopefully the outcome of the State/Federal financial relations review will remove any remaining uncertainties.
David Pring is Partner in Charge, KPMG Greater Western Sydney.
