The Victoria Government state budget, released on 20 May 2021, has increased property taxes for some purchases. The changes will see the land tax increase by 0.25 per cent for taxable land holdings between $1.8 million and $3 million, and 0.30 per cent for taxable land holdings in excess of $3 million. For stamp duty, property transactions above $2 million will attract a $110,000 duty, plus 6.5 per cent of the dutiable value in excess of $2 million.
There is also a new windfall gains tax, which has been introduced for properties whose value is boosted by a council rezoning. The tax will apply to properties where the value is boosted by more than $100,000, with a 50 per cent tax on windfalls above $500,000.
Tax Increases Needed, Says Government
Victorian Treasurer Tim Pallas has defended his budget, saying the government has taken the necessary action. $2.7 billion is expected to be raised by the new tax measures included in the latest budget.
However, the Treasurer said that the increase would only affect a fraction of the 10 per cent of Victorians who pay land tax. Land tax is only paid on properties which are not owner-occupied, or in other words, by property investors and developers. ‘There needs to be a balance between those wanting to buy their first property and large property investors who continue to profit from soaring property values,’ Mr Pallas said.
Disappointment in Property, Building and Construction Industry
Representatives across the real estate, building and construction sectors have expressed their disappointment at the changes to land tax and stamp duty, with many saying that they are putting unfair pressure on an industry damaged by COVID-19.
‘Rising property taxes announced today by the Victorian Government will hurt Victorian home buyers,’ stated HIA Executive Director Fiona Nield. She commented that Victoria already has the highest stamp duty rates in the country, and that residential development would be a key part of supporting the state through the COVID-19 recovery. ‘The activity generated from residential development supports jobs and economic activity,’ she said.
Ms. Nield added that ‘The new windfall gain tax is particularly concerning and appears to take a disproportionate share of property value from landowners that are in fact helping to support the growth in housing supply that helps keep affordability in check across regional Victoria.’
Real Estate Institute of Victoria president Leah Canlan was also dismayed by the new tax, especially after a difficult year for the property management sector. ‘There's high vacancy, there's lots of unpaid rent and this is just another effective tax that those property investors now have to manage,’ she said. ‘We don't want to see Victoria become the state no one wants to invest in.’
Danni Hunter, the Victorian executive director of the Property Council of Australia, agreed. ‘This is a greedy tax hike on the industry that is building Victoria's recovery,’ she said.
Property Prices in Victoria Consistently on the Rise
In April 2021, the median house price in Melbourne hit $1 million for the first time. In regional Victoria, the median price is over $500,000. These numbers are unprecedented, but experts say that rising house prices are being seen around the world. The shift is expected to be permanent, as people are more likely to invest in property following the uncertain year of 2020.
HIA expressed concern that the tax changes would make the situation worse. Their data shows that Victorian housing affordability deteriorated in late 2020 and early 2021, driven by a surge in dwelling prices over these six months while average weekly earnings stagnated.