While it has been billed as a fairly uninspiring budget from Eric Ripper, the May announcement was a big win for first home buyers. In his Budget address to Parliament, Mr Ripper announced the doubling of the exemption threshold for first home buyers to $500,000, with a ‘partial exemption applying for first home purchases up to $600,000’. This is at a cost of around $350 million over the next four years.
The announcement was hardly surprising after an extended period of lobbying from REIWA, and recommendations from the State Tax Review; however, it did raise a few eyebrows as a result of its early implementation. Rather than cutting stamp duty from the 30th June as expected, tax cuts were applicable from the 11th of May, helping to spark life back into the stagnating Perth property market.
The government was criticised for hinting at tax relief prior to the release of the budget, which put much of the market on hold during late March and April. It resulted in a situation where many first home buyers were holding off on buying property in anticipation of tax cuts. While some achieved better deals as a result of the market stagnation, most potential buyers waited until after May 10 to make a decision.
According to REIWA, the raising of the threshold ‘amounts to a saving of about $13,000 for first home buyers purchasing a home at around $350,000, or more than $20,000 if they can afford one at $500,000.’
The current metropolitan median price is at $460,000. So, by lifting the tax free threshold beyond this, the government is taking into account the possibility of further increases in the median price over the course of the year.
Also on the agenda this May was reform of land tax scales to reduce bracket creep. Mr Ripper stated that ‘at the lower land value ranges, the Government will increase the land tax exemption threshold by $100,000 to $250,000.’ There will also be ‘substantial’ tax cuts in the ‘mid and upper land value ranges’, although exact figures were not outlined in the Treasurer’s speech.
The aim of these land tax cuts is to reduce the upward pressure on the rental market in WA, which has been experiencing a combined lack of supply (due to low investment) and high demand (due to first home buyers’ inability to afford properties).
Ordinary home buyers, however, were not on the list for tax cuts – they are still subject to quite hefty stamp duty taxes. This is bad news for the rental market, as it continues to penalise investors, who are adding to the much-needed housing supply. Therefore, while reform of the land tax scales is a positive step in addressing the rental crisis, the lack of recognition for 88% of the buyers’ market shows a lack of political will to truly deal with the situation facing renters in Western Australia.
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Zac Whitely works for Rayner and Associates.
