Addressing the Parliament upon the release of the Victorian budget 2021-22, Treasurer Tim Pallas said that the state’s economy has been recovering in an “optimistic rush”, adding that it is on track to meet the goal of 400,000 additional jobs by 2025, and has beaten its interim goal of 200,000 jobs nearly a year early.
He also said that the state’s economy has grown, with state final demand growing by 6.8 per cent in the December quarter, while gross state product is expected to grow by 6.5 per cent in 2021-22.
Mr Pallas added that the current budget has focused on returning to an operating cash surplus in 2022-23, and the government is forecasting an operating deficit of $11.6 billion in 2021-22, which would reduce to around $2 billion in four years.
As such (and as has been previously reported by Mortgage Business), the state government has announced a range of initiatives in the budget to reduce its deficit, such as increased taxes for what it said are “top-end” property owners who have benefited from soaring real estate prices.
It has also announced targeted tax relief that Mr Pallas said is aimed at reinvigorating Melbourne’s CBD residential property market to support construction jobs.
Property tax measures
As previously flagged, Victoria’s 2021-22 budget includes measures to increase land tax rates and the premium duty rate on land transfer duty (stamp duty) for high-value properties.
From 1 January 2022, the land tax rate for taxpayers with larger property holdings will increase by 0.25 percentage points for taxable landholdings exceeding $1.8 million, and 0.3 percentage points for taxable landholdings exceeding $3.0 million, according to the budget papers.
It said that this change will apply to both the general and trust surcharge rates.
Meanwhile, for contracts entered into from 1 July 2021, a new land transfer duty threshold for high-value property transactions will be introduced.
For property transactions with a dutiable value above $2 million, the land transfer duty payable will increase to $110,000 plus 6.5 per cent of the dutiable value in excess of $2 million, the budget papers said.
Furthermore, from 1 July 2022, a tax will apply to large windfall gains associated with planning decisions to rezone land, with the total value uplift to be taxed at 50 per cent for windfalls above $500,000, with the tax phasing in from $100,000.
The tax will apply to rezoning between zone types rather than zone sub-categories, the government said.
The government also said that from 1 January 2022, the tax-free threshold for general land tax rates will increase from $250,000 to $300,000, which means that for land not held on trust, land tax will only be payable if the total taxable value of Victorian land is equal to or exceeds $300,000, while the trust rate scale will remain unchanged.
In addition, the budget includes a measure to temporarily increase the eligibility threshold for off-the-plan concession for contracts entered into from 1 July 2021 to 30 June 2023.
The threshold for the off-the-plan concession for land transfer duty will increase to $1 million for all home buyers. The property must be the principal place of residence for at least one of the purchasers, the budget papers said.
“This increase will mean that in order to be eligible for the off-the-plan duty concession, the dutiable value of the property (the contract price minus the construction costs incurred on or after the contract date) can be up to $1 million,” the papers said.
The budget also includes tax relief measures for home buyers and to support construction jobs in Melbourne’s CBD.
A concession of up to 100 per cent of the land transfer duty payable will be provided on the purchase of new residential property in the Melbourne local government area with a dutiable value of up to $1 million. For new residential property that has been unsold for less than 12 months since completion, a 50 per cent concession will be provided.
The 50 per cent concession will be in place for contracts entered into from 1 July 2021 to 30 June 2022, and the 100 per cent concession will be in place for contracts entered into from 21 May 2021 to 30 June 2022 (inclusive).
Furthermore, from 1 January 2022, the vacant residential land tax exemption for new developments will be extended to apply for up to two years, which the government said would support the construction sector by providing an exemption for at least two tax years after completion of a newly constructed dwelling before the vacant residential land tax may apply.
Mental health measures
In the 2020-21 budget, the Victorian government funded the Big Housing Build to deliver 9,300 new social housing homes, including 2,000 homes for those living with mental illness.
The 2021-22 budget includes $46 million in funding to provide mental health and wellbeing support for those with mental illness to remain in housing. This includes funding to co-design and plan for 500 additional housing places for young people living with mental illness.
In addition, the Victorian government said that it will implement a new revenue mechanism (levy) to fund mental health services as recommended in the Royal Commission into Victoria’s Mental Health System.
From 1 January 2022, the mental health and wellbeing levy will be implemented as a payroll tax surcharge on wages paid in Victoria by businesses with national payrolls over $10 million. A 0.5 per cent rate will apply for businesses with national payrolls above $10 million, while businesses with payrolls above $100 million will pay an additional 0.5 per cent.
COVID disruption saw some sectors profit, says state treasurer
Commenting on the Victorian government’s property tax measures outlined in the budget, Mr Pallas said: “While most of us struggled and endured enormous sacrifice last year, that struggle was not universal – there were small sectors of our community who made significant profits out of the disruption.
“Indeed, it’s fair to say there have been some big winners from the pandemic – and after a year defined by widespread sacrifice, it’s only fair that they pay their share. That’s why we will increase taxes on top-end property owners who have benefited from soaring real estate prices.”
Speaking about the targeted tax measures aimed at the Melbourne CBD residential property market, Mr Pallas said “we know Melbourne’s CBD is still struggling and we can’t wait to see our beautiful city thriving and busy again”.
In a recent address to the National Press Club, federal shadow treasurer Jim Chalmers voiced his support for a national scheme that would scrap stamp duty and substitute it with property tax.
Referring to tax reform implemented by the ACT government in 2012 to gradually phase out stamp duty as part of a 20-year program to transform ACT’s tax system, Mr Chalmers said, “I think there is something in the stamp duty, land tax swap out”.
“I think in the future, at some future point, there is a lot of merit in a national scheme that swaps out, in the way that Andrew (Barr, ACT chief minister) is doing here [in the ACT]: stamp duty for land tax,” Mr Chalmers said.
Commenting on Victoria’s pre-budget announcement about the new property taxes, Mr Chalmers told the National Press Club that states make their own decisions about how they manage their budget, and added: “I don’t actually think it’s that helpful for the feds to be a kind of an ongoing commentator about the ideas and the steps that the state governments take.”
He said: “Some will make decisions in the near term to try and repair their budget sooner, and that’s a matter for them.
“I want to work collaboratively, not just with the Labor states and territories, but with the Liberal ones as well. The Liberals have taken some steps on this front that we support as well.”
[Related: Vic to be hit with stamp duty, land tax hike]
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Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.