In its 2023-24 state budget, the Victorian Government announced a new policy that would see land taxes temporarily increase over the next 10 years, which, according to experts will hurt property owners and tenants.
As part of a new COVID Debt Repayment Plan, which aims to pay down $31.5 billion of COVID debt over the next 10 years, the government will introduce a temporary levy to help pay off the debt incurred during COVID. The COVID Debt Levy will apply to big businesses, investors and those who pay land tax.
From 1 January 2024, the tax-free threshold for general land tax rates will temporarily decrease from $300,000 to $50,000.
Those who pay land tax will attract a temporary additional fixed charge starting at $500 for landholdings between $50,000 and $100,000.
There will be a $975 fixed charge for landholdings above $100,000 and the tax rates will temporarily increase by 0.1% for both general and trust taxpayers with holdings above $300,000 and $250,000 respectively.
These changes are estimated to raise $4.7 billion to repay COVID debt over four years.
The existing land tax exemptions, including on the primary place of residence, primary production land, land used by charities and residential care facilities, will continue to apply.
Analysis of the new policy has found that a Victorian investor with land holdings worth $1 million will be paying about $2000 in extra land tax per year – or about $20,000 over the next decade – however, the tax will continue to increase along with land values throughout that time, so the cost to investors will likely be much higher.
Property Investors Council of Australia (PICA) Chair Ben Kingsley said the policy would affect hardworking Victorians for decades.
“This is what happens when you have so much debt as well as continued economic mismanagement and self-serving governance,” Mr Kingsley said.
It’s a classic case of which policy is going to cause the least amount of political damage, so, they go after the aspiring and hardworking Australian.”
Property Investment Professionals of Australia (PIPA) Chair Nicola McDougall said the new land tax appeared to be modelled on the Queensland Government’s similar failed policy last year.
“It does seem like the Victorian Government has taken an illogical page out of the Queensland’s Government’s ill-fated and investor-focused land tax playbook from last year, and we all know how that worked out for them,” Ms McDougall said.
“This absurd policy will no doubt lead to the exodus of investors in Victoria who are already struggling with significantly higher mortgage repayments that dwarf any increases in rent over the past year.”
Mr Kingsley said investors will desert Victoria in droves – just as they did in Queensland last year – with renters set to pay higher rents because of the policy folly.
“Victoria has the highest stamp duty of any state and territory in the country, so, this policy is like rubbing salt into a wound,” Mr Kingsley said.
“Anyone looking to buy property in Victoria will look elsewhere, because this policy says that Victoria is closed for business.
“Borderless investors will simply shop elsewhere where they are not being slugged by sky-high stamp duty and land tax, which will have a hugely detrimental impact on rental supply.”
Ms McDougall said it was illogical that any state government would implement such a policy during a prolonged critical undersupply of rental properties.
“It beggars’ belief that at a time of record low vacancy rates, rising rents, and increasing overseas migration – many of whom will initially choose to live in Melbourne but may find nowhere to rent – that the Victorian Government would even consider implementing such a ridiculous policy,” Ms McDougall said.