Victoria prematurely begins budget repair with new taxes

Content Summary

The Victorian Government has begun the process of fiscal consolidation by increasing taxes in the 2021-22 budget, in a move Australia’s leading accounting profession body labelled “premature”.

Elinor Kasapidis, CPA Australia Senior Manager Tax Policy, said “Victoria faces several recovery challenges. Many sectors and regions are still hurting. It’s too soon to focus on budget repair.

“Eventually Victoria will have to pay off its pandemic debt. But 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.

“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.”

The budget also includes big spending initiatives targeted at rejuvenating Melbourne’s CBD and establishing Victoria as Australia’s creative capital.

“We support targeted spending in heavily impacted geographies and sectors. However, many of the businesses that stand to gain from initiatives like the CBD revitalisation may end up paying higher state taxes.”

Taxation

The budget increases taxes on higher-end properties, aimed at ensuring that those at the top make a larger contribution. From 1 January 2022, the land tax rate will increase by 0.25 per cent for taxable landholdings above $1.8 million and by 0.3 per cent for taxable landholdings over $3 million.

“This increase is being pitched as a tax on the top end of town. It’s anything but and will 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.”

Transfers of properties over $2 million will incur a premium duty rate from 1 July 2021. For transactions over this threshold, the land transfer duty will increase to $110,000 plus 6.5 per cent of the dutiable value in excess of $2 million.

“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.”

From 1 July 2022, landowners will incur a tax of 50 per cent on rezoned land for windfall gains above $500,000, with the tax phasing in from $100,000.

“This is a punitive tax on unrealised property gains and may reduce housing affordability in Victoria. Developers’ costs are likely to be passed on to purchasers. 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.

The budget includes a new Health and Wellbeing Levy of 0.5 per cent, which applies to businesses with national payrolls over $10 million per year. “We commend the focus on mental health in the budget but funding it through a surcharge on businesses shifts the burden to the private sector, which needs to be focused on its own health and recovery right now. This is something the government should have funded from consolidated revenue as part of an expansionary budget.

From 1 July 2021, the payroll tax-free threshold will increase from $650,000 to $700,000. “This is a token increase and is out of step with the rest of Australia. It should have been increased to at least $1 million like every other state and territory.”

The regional employer payroll tax rate will reduce from 2.02 to 1.2125 per cent, which we regard as a step in the right direction.

Other budget measures

With more than $144 billion of capital works commencing or currently underway, the budget only includes a small number of new infrastructure projects. Among them are $3.2 billion to improve public transport services and infrastructure and $1.6 billion for school infrastructure.

“Investing in public infrastructure provides welcome economic stimulus but Victoria also needs policy settings which encourage private investment.”

The budget includes more than $107 million to rejuvenate Melbourne’s CBD. “The CBD was overlooked in the last budget despite being especially hard hit by Victoria’s lockdowns. What CBD businesses need more than anything is for visitors and office workers to return to their streets and laneways, and these measures are welcome.”

The budget includes a $288 million creative industries package, including $121 million for the state’s screen industry. “The cultural and creative sector was devastated by COVID-19. This investment recognises the importance of the sector and supports Victoria’s broader recovery.”

The government will invest $384 million in skills development. “This will assist in the long-term, but Victoria will continue to experience short-term skills shortages until international travelers and students return.”

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Dr Jane Rennie
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