THE number of home buyers paying the state government's new property tax is forecast to soar beyond estimates and significantly increase the revenue flowing to the government, unless the Treasurer, Eric Roozendaal, moves to index the $500,000 threshold.

The Lands Minister, Tony Kelly, revealed yesterday that, only three weeks before the budget, the government had yet to discuss whether the threshold would be indexed to prevent increasing numbers of property sales incurring the extra tax as prices increased.

''We haven't discussed that yet,'' he admitted. ''That's certainly something that was raised with me this morning. I'll certainly be raising that with the Treasurer.''

The government insists the tax will affect only 30 per cent of property transactions in NSW. However the median house price in Sydney - $600,000 - is forecast to rise as high as $1 million within a decade.

Mr Kelly acknowledged that revenue surplus to the stated purpose of the tax - to combat fraud in property documentation and underwrite payouts to victims of fraudulent transactions - would flow to consolidated revenue.

Last night the Opposition Leader, Barry O'Farrell, committed to opposing the tax and repealing it if elected to government.

The opposition accusing the government of lying about the reasons for the tax, arguing that it was a revenue-raising measure.

The tax is expected to raise $90 million a year by imposing a 0.2 per cent levy on the portion of residential and commercial property sales between $500,000 and $1 million and 0.25 per cent on the portion above $1 million.

While Mr Kelly has said revenue from the tax would fund the new anti-fraud features such as watermarks and security seals on property documents, the opposition has pointed out that the measures were introduced last June.

Mr Kelly yesterday sought to change the focus of the tax to funding the Torrens Assurance Fund, which insures property holders in NSW against document fraud on their property for the time they own it.

The current charge of $190 covers the administration of the fund, Mr Kelly said, and the new tax was needed to adequately fund its potential liabilities.

He said there were 35 fraud matters being investigated by NSW Police, for which the fund's exposure would be $20 million.

The opposition also pointed out that a charge of $4 is already levied on property transactions to cover fraud and error.

Mr Kelly's spokesman said the charge had raised $2.7 million last financial year, whereas more than $4 million had been paid out.

Another developer group, the Urban Development Institute of Australia, added its voice to the criticism yesterday.

Its NSW chief executive, Stephen Albin, said the tax threatened the recovery of the NSW housing market. ''Sydney is already suffering from a lack of housing supply because developers aren't acquiring land to bring to market because the process is too costly and too risky,'' he said. ''This new tax will only exacerbate that problem."