NSW Budget focused on “economy over recovery”

As with most State Budgets announced so far, NSW’s economy has recovered much faster than anticipated and is one of the healthiest budgets as we come out of the Pandemic. The State’s unemployment rate is down to 5% from its peak of 7.1% in July 2020. Gross Domestic Product is up 1.1% over the last 12 months – however, it is important to note that the booming Sydney property market accounts for a significant proportion of the increase in expected revenue after the State collected an additional $1b.

In addition to expenditure, there was also a strong reform platform with a new school curriculum in the works and a potential pilot program to stagger school times to help boost productivity and provide more flexibility for shift workers. Stricter deadlines for subcontractor payments have also been introduced.

Nothing was announced around the proposal to replace stamp duty with an annual land tax as more consultation is happening in the background. We expect to hear more on this in the next coming months.

A complementary announcement was the introduction of the Environmental Planning and Assessment (Infrastructure Contributions) Bill 2021 which outlines four key reforms to fund infrastructure investment, which includes the introduction of a land value contribution payable by developers by reference to the increase in land value arising from planning decisions.

Stricter deadlines for subcontractor payments

While not strictly a budget measure itself, the NSW Government has outlined new regulations which require any large businesses with a NSW government contract valued at more than $7.5m to pay subcontractors within 22 business days. This new measure specifically addresses the cash flow issues that small businesses face and complements the Payment Times Reporting requirements for large organisations.

Revenue Measures

After a decline last year, Government revenue is projected to increase by 7.7% in 2020-21 to be $87.6b. This is $3.0 billion (3.5%) higher than forecast at the 2020-21 Half-Yearly Review in February, although still below pre-COVID forecasts. State revenue has been upgraded by $18.2b (4.9%) over the four years to 2024-25 since the 2020-21 Half-Yearly Review. This is largely the result of improved economic activity and residential housing activity, rather than new taxes or higher tax rates.

Motor vehicle measures

The NSW Government will introduce a road user charge (RUC) on battery, fuel cell and plug in hybrid vehicles, to commence from the earlier of 1 July 2027 or such time as battery electric vehicles comprise 30% of new vehicle sales in New South Wales. In the meantime, the Government will progressively abolish motor vehicle stamp duty on such vehicles. From 1 September 2021, new and second-hand battery electric vehicles and hydrogen fuel cell vehicles under $78,000 will be exempt from motor vehicle duty. This exemption will be extended to all, new and used electric vehicles, from the start date of the RUC.

There has been much movement in the last 6-12 months in relation to the taxation of electric vehicles, and of course, no 2 jurisdictions are the same. The current state of play of State and Territory taxation of electric vehicles is .

Land tax surcharge compliance

Investment in system upgrades and improved data management in Revenue NSW is expected to make it easier for taxpayers to manage their surcharge land tax obligations and facilitate improved compliance (and for Revenue NSW to detect non-compliance), increasing land tax revenue by $194m over the four years to 2024-25.

Since the deadline of 31 December 2020 for taxpayers to make relevant amendments to their discretionary trust deeds, we have noticed that Revenue NSW is actively enforcing the land tax surcharge measures. We already have made a number objections on behalf of our clients in relation to what we have viewed to be incorrect assessments arising out of the increased compliance activity.

Payroll tax cuts come to an end

The temporary reduction in the payroll tax rate from 5.45% to 4.85% will continue in 2021-22 but will return to previous rates in 2022-23.

Land value contribution

A complementary announcement was the introduction of the Environmental Planning and Assessment (Infrastructure Contributions) Bill 2021 which outlines four key reforms to fund infrastructure investment, which includes the introduction of a land value contribution payable by developers by reference to the increase in land value arising from planning decisions. The new system is expected to apply to Sydney, Central Coast, Hunter Valley, Illawarra and Shoalhaven regions and is expected to be implemented by 1 July 2022.

It appears that the land value contribution will be determined by local councils during the planning phase of development, and will be included with other types of contributions required for development. Similar to Victoria, the land value contribution must be paid before land is sold, and is a charge on the land until it is satisfied. However, unlike Victoria, while there is no set fee or percentage of the contribution, there is provision for Regulations to provide for the way in which land value contributions must be calculated and the way in which value is determined.