The 2026 Federal Budget has overshadowed the 2026 State Budget, that continued the lack of any material reform to State taxes.
A little acknowledged aspect of transfer duty is the extent to which price inflation has increased the average rate of duty because the graduated scale of duty has remained largely unchanged for many years.
In the income tax field, bracket creep is well recognised and has been relieved by adjustments both to marginal rates and the tax brackets to accommodate increases in income. If that were not done, ordinary increases in income would result in a taxpayer moving to a higher tax bracket and paying a higher rate of marginal tax, thus increasing the average rate of tax paid.
As an example, the top of the nil rate band has moved from $6,000 in 2011–12 to $18,200 in 2012–13 and the top marginal rate now applies after $180,000 having increased from $150,000 in 2007–08.
The position for transfer duty is starkly different. Until 1982 the stamp duty on land transfers was effectively a flat rate of 1.5%. In that year the maximum rate was increased by 283% to 4.25%. To ease the burden on small purchasers a graduated scale was introduced so that the full rate of duty was not paid on the land value in a single transaction less than $500,000. The lowest rate of duty, which continued to be 1.5%, applied up to $80,000.
In 1982 those amounts were substantial. The median house price then was less than $40,000. That may be compared to the median house price in 2026 of more than $1,000,000.
The full rate of duty was later increased to 5.40%, reduced to 5.15% when the Duties Act came into operation in 2008.
Despite the increases in land prices since 1982, the thresholds remained the same until 2008 when the threshold for the maximum rate for residential properties was increased to $725,000 with similar adjustments for the intermediate thresholds, and then applied for all dutiable property in 2022. But that only resulted in a maximum decrease of $2,800, hardly a significant reduction, and did almost nothing to alleviate the effects of bracket creep.
And nothing has been done since 2022 despite the substantial increases in property values since then.
The failure to index the thresholds at which increased duty rates apply has resulted in bracket creep of monumental proportions. In 1982 a taxpayer who bought a property costing twice the median house price still paid duty at the lowest rate of 1.5%. In 2026, the duty charged on purchase of a property costing $1 million, now less than the median house price, is $42,615.50, an increase of more than 280%!
Successive governments have had the advantage of the windfalls of revenue brought about by the stealthy action of bracket creep. The relief provided to first home buyers and to buyers of certain lower cost properties no doubt assisted to mute criticism.
In November 2018 the NSW Treasurer announced that in NSW the stamp duty brackets would be indexed to inflation from 1 July 2019, while this is to be welcomed, much of the effect of bracket creep was already embedded in the then current brackets.
In Victoria in August 2023, a committee recommended stamp duty rates should be reviewed to adjust for bracket creep, but that has not been adopted.
It is often said that the duty charged on land transfers is an inefficient and archaic tax and there have been many submissions made for abolition, but that has proven to be politically unacceptable and a replacement source of revenue would be needed.
Unless and until transfer duty can be abolished and replaced, the average rate of duty continues to increase through bracket creep further embedding the inefficiencies that reach right down to the bottom of the housing market.
The time is overdue for government to recognise and alleviate the taxation burden arising from transfer duty bracket creep.
