Stamp duty has long been disliked by economists as it is a tax on moving house. The NSW government had hoped to offer all buyers the choice between upfront stamp duty or a smaller annual land tax, making it easier for home owners to upgrade to a bigger home, downsize to a smaller one, or move closer to a new job.

But losing stamp duty revenue would be a short-term hit to the state budget and instead the government opted for a more modest change that allows only first home buyers to opt out of stamp duty, announced in its budget on Tuesday.

Once someone owns their first home, they would still face stamp duty on their second, which discourages moving, Grattan Institute economic policy program director Brendan Coates said.

“It looks less like a tax reform and more like just another support for first home buyers, because it doesn’t actually really start the transition,” Coates said.

“The big economic costs of stamp duty are about whether you go and buy again and move again. That’s the point at which people’s housing choices are constrained because they don’t want to pay stamp duty on the second property.”

But Coates said it would improve home ownership rates by reducing the deposit hurdle and help some people to buy a home sooner, although it would also marginally increase prices.

Domain figures show buyers who plan to move again in the medium term would save money by choosing land tax over stamp duty.

Someone who bought a $1 million home could pay land tax for 16 years before equalling the amount they would have spent on stamp duty. A buyer at $1.5 million would take 18 years.