House of cards: NSW faces $8b stamp duty shortfall

Sydney’s property market slump has forced the NSW government to slash $8 billion from expected stamp duty revenue this year.
But Treasurer Dominic Perrottet says the state economy can maintain solid growth despite the biggest downturn in Sydney house prices in three decades.
The state’s half yearly budget review on Tuesday will forecast “above trend” growth in NSW this financial year before easing closer to the long-term trend of 2.5 per cent over the following three years. “No doubt there are challenges in front of us,” Mr Perrottet told the Herald.

But overall our economic growth position remains strong.”

Mr Perrottet said that while housing is very important, it is “not the only game in town” and the diversity of the NSW economy would help underpin growth.

“Importantly, we’ve got more people in work than ever before and the lowest unemployment rate in a decade at 4.4 per cent,” he said.

“I’m very confident about the future of our state and our economy.”

House prices in Sydney have fallen by just over 10 per cent since their peak in the middle of last year according to price monitoring firm, Corelogic. That’s the biggest decline since the period between 1989 and 1991 when prices fell by 9.6 per cent.

One factor offsetting negative effects of falling house prices is the pipeline of big infrastructure projects in NSW.

Public investment in infrastructure contributed about 0.5 of a percentage point to the state’s 2.6 per cent economic growth rate last financial year – five times its average contribution in the past.

Mr Perrottet rejected claims that the government’s push to reduce the number of migrants arriving in NSW would be a major drag on the economy.

“Population growth whether it’s natural or from immigration provides support for economic growth but I don’t believe a reduction, or a breather [in net migration] as the premier has suggested, will have a significant impact on our economic growth,” he said.

Earlier this year Premier Gladys Berejiklian called for net migration to NSW to be halved.

Mr Perrottet said NSW Treasury has not done any modelling to estimate the economic impact of a drop in migration numbers of that magnitude. He called on the federal government to provide additional infrastructure funding to cities and states which receive a disproportionate share of migrant arrivals.

Tuesday’s half-yearly budget review is the last major financial statement scheduled before the state election in March.

It will show the government has written down expected stamp duty revenue by $2.5 billion over the four years to 2021-22 due to the softening housing market and tightening lending conditions. That follows a $5.5 billion reduction over four years announced in the state budget, bringing the total write down since June to around $8 billion. Residential stamp duty accounts for about 9 per cent of state government revenue.

However, the hit to stamp duty will be offset by improvements in GST and payroll tax takings.

“We are still in a very strong financial position,” Mr Perrottet said.

The half yearly review will also reveal the amount in the NSW Generations Fund, a sovereign wealth fund announced in the June budget, will rise from $3 billion to $10 billion. The increase is primarily due to higher than expected proceeds from the Government’s sale of a 51 per cent stake in the WestConnex motorway.

Dividends from the fund, which is chaired by former Reserve Bank Governor Glenn Stevens, will be allocated to local projects. Community residents will be able to nominate ideas to improve the area where they live and anyone aged over 16 will be able to vote on the project they want.

The half yearly review will update the government’s budget balance. In June it forecast a surplus of $1.4 billion this financial year and surpluses of a similar size in the following two years.

Source: SMH Made Wade 15/12/18

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