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NSW State Budget: 2020-21

NSW State Budget: 2020-21

NSW has had to deal with two economic shocks, the bushfires, and COVID-19, whilst simultaneously navigating a drought which has only recently ended with above-average rainfall in September and October. The coronavirus-induced recession has been the main contributor to an estimated $24 billion fall in revenues for the State between 2019/20 and 2023/24.

Overview of the NSW economy and its relative standing when compared to the economies of other Australian states and territories

Unemployment Rate [1] 7.2% 6.7% 7.7% 7.1% 6.7% 7.6% 4.8% 3.8% 6.9%
GDP (Annual Change) [2] -1.7% 1.6% -0.5% 0.1% 7.7% 3.3% 7.9% 4.9% 1.5%

Compared with the other states and territories, NSW:

  • Had the weakest economic growth in the 2020 financial year
  • Saw a 4.3% yearly decline in retail trade to the end of June 2020, only better than the worst performing state (Victoria, -6.2%)
  • Had the third largest contraction in equipment investment, falling 17.1% in the financial year ending June
  • Suffered the largest decline in construction work (-8.9% in the twelve months to the end of June 2020)
  • Had the sharpest contraction in dwelling commencements in the 2020 financial year (-12.6%), except for Western Australia

What’s in the budget for NSW business

In addition to a plethora of social good spending on construction and services, the NSW Budget has introduced some modifications designed to get NSW ‘back into business’. The following are specific measures announced.

Lowering the payroll tax rate to 4.85% from 1 July 2020

The payroll tax rate will be temporarily reduced from 5.45% to 4.85% for all NSW tax-paying businesses in 2020-21 and 2021-22. The lower tax rate is estimated to provide NSW’s businesses with around $2.1 billion in savings in total across 2020-21 and 2021-22.

Increasing the payroll tax threshold to $1.2 million from 1 July 2020

You will recall that as part of the NSW Government’s response to COVID-19, the Government announced in March 2020 that it would increase the payroll tax threshold from $900k to $1.0 million from 1 July 2020. The Government has now decided to increase the threshold from 1 July 2020 to $1.2m. These increases in the threshold from $900k to $1.2m will save businesses around $800m over the four years to 2023-24. This is on top of savings to businesses of $571.0 million over the forward estimates from previously announced threshold increases.

$1,500 Digital vouchers to reduce fees and charges

The Government will provide small and medium-size businesses, which do not pay payroll tax, with a $1,500 digital voucher for the cost of government fees and charges.

$100 vouchers to spend within the entertainment & leisure industry

The Government will inject up to half a billion in the ‘Out and About’ program to stimulate spending in the local economy, including restaurants, visitor sites, and cultural attractions. Every adult resident will be eligible to claim up to $100 in digital vouchers to spend on eating out and entertainment.

The surprise: Stamp duty and land tax could disappear (in time)

The Government has announced that it is “now seeking to progress the conversation beyond the theory by proposing a model for reform, where transfer (stamp) duty and existing land tax could be replaced by a single property tax”.

Referring to its November 2020 Consultation Paper titled, “Buying in NSW, Building a Future” the Government is seeking feedback from the public on the following possible policy framework to replace.

1. The Property tax will be an annual tax on land value

Property tax would capture all property types and consist of a fixed amount plus a rate applied to the unimproved land value of an individual property, and not aggregate landholdings. This is the same approach as council rates.

2. Buyers will be given a choice of which tax to pay

Buyers could choose to pay the Property tax at the time of purchase.  It would replace stamp duty and (where applicable) land tax. Once a property is subject to the property tax, subsequent owners must pay the property tax. This means there is no ability for a new landowner to opt back into paying duty on a property that is (then) subject to annual land tax. The maths of paying duty once v paying annual land tax must be considered.

3. Balanced Rates

Residential owner-occupied and primary production properties would pay lower rates than residential investment properties, which in turn would pay lower rates than commercial properties.

4.  If you are not buying a property, there is no change

There will be no double taxation. If you have already paid stamp duty on your property, then you will not have to pay the property tax. For current property owners, there is no change.

5. Price threshold

Price thresholds would limit the number of properties initially eligible for transition to keep revenue and debt impacts within reasonable levels while ensuring over 80 percent of residential properties are eligible to opt-in from day one.

6. Protections

Protections would apply so that the property tax does not result in rent increases without a tenant’s agreement. A hardship scheme would recognise that taxpayers’ financial situations can change over time and ensure that no one facing hardship needs to sell their home to meet property tax liabilities.

7. Revenue neutral

In the short term, the proposed model will reduce the NSW Government’s revenue. Over the longer term, the property tax would be revenue-neutral, collecting the same amount of revenue as stamp duty and land tax.

8. First Homebuyers

Existing stamp duty concessions for first home buyers could be replaced with a grant of up to $25,000.

[1] The Unemployment Rate was sourced from the Australian Bureau of Statistics and shows the rate at the end of September 2020.

[2] The change in GDP (i.e. economic growth) was sourced from a Commsec report entitled State of the States, October 2020 economic performance report and shows all rates as at the end of June 2020.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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