CPA Australia has labelled the Victorian government’s move to begin the process of fiscal consolidation by increasing taxes in the budget as “premature”.
The comments have followed the release of the Victoria 2021-22 budget by the Daniel Andrews Labor government and Treasurer Tim Pallas, which includes measures to increase land tax rates for taxpayers with larger property holdings, and introduce a new land transfer duty (stamp duty) threshold for high-value property transactions, while a tax will apply to large windfall gains associated with planning decisions to rezone land.
In addition, the budget includes tax relief measures for home buyers and to support construction jobs in Melbourne’s CBD.
CPA Australia senior manager, tax policy Elinor Kasapidis acknowledged that Victorians would eventually have to repay its “pandemic debt”, but argued that with many business sectors and regions still feeling the impacts of the COVID-19 crisis, it is “too soon” to focus on budget repair.
“The Victorian Government is experiencing its own property tax windfall due to rising housing prices. To increase their take when many businesses are still doing it tough is extremely disappointing,” Ms Kasapidis said.
“By seeking to raise tax revenues at this stage of the economic cycle, the Victorian government risks damaging the state’s recovery. It doesn’t make sense to impose new costs on businesses and investors now. People and money are mobile. New taxes will undermine confidence and may drive them away.”
Ms Kasapidis also noted the increased taxes on higher-end properties aimed at ensuring that owners of high-end properties make a larger contribution, and said that while it is being pitched as a tax for high-end property owners, the costs would be passed on to renters, including individuals and small businesses.
“It’ll also catch many self-funded retirees who earn income from an investment property. Effectively, it’s quite a broad-based tax,” she said.
Commenting on the increases in stamp duty for properties over $2 million, she said: “Because the threshold isn’t indexed, average families purchasing in middle tier suburbs will soon find themselves caught by this tax. It’s also likely to increase competition for properties under $2 million.
“Victoria has one of the highest rates of stamp duty in the nation. At a time when other states and territories are reducing taxes and reconsidering stamp duty, it’s difficult to understand why Victoria would increase it.”
Furthermore, Ms Kasapidis said that the windfall gains tax could reduce housing affordability in Victoria, and is a punitive tax on unrealised property gains.
“Developers’ costs are likely to be passed on to purchasers,” she said.
“First home buyers in Melbourne’s outer suburbs and farmers who have their land rezoned by the government may be among the losers from this tax.”
Ms Kasapidis also supported the targeted spending to revitalise the Melbourne CBD, but warned that businesses poised to benefit from the measure could pay higher state taxes.
Budget highlights ‘structural’ issues in Victoria, says property group
The Property Council of Australia has questioned the timing of the Victorian government’s budget measures to increase taxes and introduce new taxes, pointing out that wage growth has remained stagnant and unemployment is at 6.1 per cent.
Victorian executive director of the Property Council of Australia, Danni Hunter has praised some of the measures announced in the budget but argued that the state could not continue to rely on property taxes alone to fund its services, and said that the budget highlighted the structural challenges facing Victoria.
Ms Hunter also said that while NSW and other states were adopting strategies of nationally reducing their reliance on property taxes, “the Victorian government has demonstrated that it has a very real addiction to this revenue”, adding that the Victorian government was “out of step” with other state governments on what she said was its “tax-heavy” approach to the budget.
Commenting further, Ms Hunter said: “With governments around the country focused squarely on stimulus and increasing investment because they know it is good for jobs and their communities, the Victorian Government has taken the opposite approach.
“The Victorian government has given itself a massive 13 per cent pay rise this year thanks to increased property taxes and new taxes on families, jobs, and investment.
“Victorians pay more than 50 per cent of the government’s tax revenue through property, and with massive hikes on land tax, stamp duty, and investment in new projects, these taxes are anything but fair.”
Ms Hunter said that stamp duty would increase by 13 per cent while land tax would rise by 15 per cent, adding that the new stamp duty would hit 50 per cent of homes in 120 suburbs by 2030.
“Victorian homeowners, renters, businesses, and investors will pay for these tax increases on top of the huge portion of tax revenue they already pay,” she said.
“Now is not the time for budget repair and is not the time to over-tax an industry that employs one in four Victorian workers.
“Victorian families will pay more to buy a house that suits their needs. Victorian businesses will pay more in the form of increased land tax and costs on businesses through their office space or warehouses. This, in turn, will flow through to the cost of products and services for every Victorian.”
On the other hand, Ms Hunter said that the Property Council of Australia welcomed some of the budget measures, such as the temporary increase in the off-the-plan stamp duty concessions to $1 million, and the $107 million investment into revitalising Melbourne’s CBD.
“The Victorian Government has heard our pleas to secure construction jobs in Melbourne’s CBD and central city,” she said.
“On current projections, without new apartment projects, this sector of the industry will lose 6,000 jobs per year by 2023. The targeted stimulus measures to attract people back to our CBD as a place to call home is appropriate and will make a valuable difference to the vitality and sustainability of our CBD and central city.”
[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.