States paying the price for heavy reliance on stamp duty

PROPERTY industry bodies have called for urgent action to buoy real estate in the nation’s two largest states as falling stamp duty receipts prompt escalating budget shortfalls.

In NSW, a forecast decline of property sales through 2027 is set to have a ripple effect on state coffers, with one analysis suggesting a $3.1 billion drop-off in stamp duty revenue.

The situation is also bleak in Victoria where the state’s May 5 Budget showed a one-year $600 million slump in stamp duty.

§ Calls for greater focus on the NSW property industry

Tim McKibbin, Real Estate Institute of NSW chief executive, said the state's deteriorating fiscal situation was a “timely reminder to the government that they need to be putting more focus on the property industry”.

“I think government is getting a real solid lesson right now about the importance of the property market to their ability to fund their programs,” McKibbin said.

“Once people lose confidence in any market, you're going to have adverse outcomes. I think that's what we're seeing now.

“Purchasers are looking at the market and they're saying to themselves, how far down is it going to go before I want to go and buy? And they're seeing the market decline.”

§ NSW cuts stamp duty revenue forecasts

Despite Budget downgrade in NSW, strategists have reportedly cast doubts about state projections of stamp duty revenue since the federal Budget made controversial changes to tax laws, including negative gearing.

Following the Budget, NSW cut $2.3 billion from its predictions for stamp duty for FY27, forecasting an $8 billion total knock over forward estimates.

While it was difficult to know when the market would “hit bottom”, McKibbin said it was key that major parties stopped playing politics with the issue.

“Treating property as a political platform, I think that's causing a lot of harm,” he said.

§ Victoria urged to restore investment confidence

Across the border, Andrew Lowcock, Property Council Victoria deputy executive director, said heavy reliance on property taxes left state finances increasingly exposed.

Lowcock said when the property market slowed, the impact on the state’s budget was stark given almost half of Victorian tax revenue derived from property.

“Falling stamp duty collections should be a warning sign that Victoria cannot continue to rely so heavily on an industry already facing significant challenges,” Lowcock said.

“The answer is not to impose further costs on an already constrained sector but to create the conditions for investment and development to thrive.

“That means more competitive tax settings, fewer barriers to getting projects off the ground and greater certainty for investors.”

His view was that “all parties must prioritise reforms that restore investment confidence and get Victoria building again”.

§ Election call to review reliance on stamp duty

Ahead of the November 28 election, REIV urged both Labor and Liberals to review reliance on stamp duty.

The warning comes after Victoria's softer property market delivered a $5 billion hit to the state's budget forecasts less than a month out from polling day.

“A more subdued property market and rising interest rates are exposing the risks of relying so heavily on property transactions to fund essential service,” REIV chief executive CEO Toby Balazs.

“With further pressure on borrowing capacity and property market activity, the next government must review its current reliance on property taxation and provide a sufficiently stable and sustainable foundation for the state's finances.”

Balazs said Victoria’s declining fiscal position showed a need to “consider a more sustainable approach to revenue and investment”.

“Stamp duty is inherently tied to property market activity,” he said.

“When transactions decline, so does the revenue the government relies on to fund essential services.

“That volatility presents a significant challenge when the state is also managing substantial debt obligations.”

According to Balazs, Victoria has become “increasingly reliant on property taxation, while simultaneously making the state a less attractive place to invest”.

“The cumulative impact of higher taxes and regulatory costs is undermining investor confidence and contributing to the decline in rental investment.”

NSW treasurer Daniel Mookhey and Victorian treasurer Colin Brooks did not immediately respond to requests for comment.