John McGrath - Victorian Property Tax Hike Unfair Revenue Grab
It’s outrageous that the Victorian Government is asking home buyers, investors and business owners to pay more in state property taxes in the middle of a pandemic, when all Australians are being asked to spend more at the shops and invest in our businesses to create jobs and lift our economy.
As laid out in last week’s state budget, the Victorian Government is proposing an increase to stamp duty on homes valued at $2 million or more, as well as an increase in land tax on holdings worth $1.8 million or more. This will hit both family home owners and small to large businesses alike.
The Victorian Government’s excuse is that they’re targeting the wealthy and that in monetary terms, the increases will be relatively small. My view is that property buyers and owners pay enough tax already - in fact, they pay an absurdly high amount.
Last week, the Acting Victorian Premier, James Merlino said buyers of $2.5 million homes would pay just $5,000 more in stamp duty. But they’re already paying $137,500! The extra $5,000 that the government wants to put on top just adds insult to enormous existing injury.
On land holdings of $2 million, the increase to land tax would be just $500, Mr Merlino said. But these land owners are already paying around $12,000 per year for the simple right to own investment properties to fund their retirement and/or commercial properties for their businesses.
Respected former AFR property editor, Robert Harley last week pointed to a report commissioned by the Property Council that found Victorians contributed more than $18 billion in stamp duty, land tax and other state and local government charges in FY19, which equated to 59% of total tax revenues.
Here’s a recap on the proposed $557 million in new property taxes that the Victorian Government wants home owners, investors and businesspeople to pay every year:
- Stamp duty on homes valued at $2 million or more to increase from a flat rate of 5.5% to $110,000 plus 6.5% on the total value above $2 million from July 1, 2021
- Land tax on holdings worth between $1.8 million and $3 million to increase from $9,375 plus 1.3% of the value above $1.8 million to $9,375 plus 1.55% from January 1, 2022
- Land tax on holdings worth $3 million or more to increase from $24,975 plus 2.25% of the value above $3 million to $24,975 plus 2.55% from January 1, 2022
- Developers and speculators will be taxed on windfall gains above $100,000 generated as a direct result of re-zoning decisions from July 1, 2022. The tax on the total value uplift created overnight by re-zonings will be as high as 50% on gains above $500,000
What a ludicrous thing to do during an economic recovery. That’s $557 million every year that isn’t going to be spent at the shops or in restaurants, isn’t going to be spent on small business investment and isn’t going to be spent on local holidays to help our critical tourism sector that is still on life support.
It’s even more insulting to Melburnians, particularly the business owners who had to endure the heavy financial impact of a second long lockdown due to failures with quarantining. Their income and cash flow are probably still impaired, yet the government wants them to pay more tax?
The current burden of stamp duty is impacting many Australians’ ability to move to the most appropriate home for them. As a result, young families are staying in small homes that can’t accommodate their growing families while empty-nesters remain in homes that are too big.
This massive upfront cost delays purchasing decisions and reduces the supply of homes for sale, which in turn exacerbates the competition for every home and pushes prices up.
The need for reform is clear and some governments are finally listening. The ACT is nine years into a 20-year plan to phase out stamp duty in favour of higher rates and land taxes. This has brought the cost down. On a $700,000 purchase, stamp duty is $20,040 compared to $32,000 in 2012.
The NSW Government is proposing to let buyers choose between paying a large upfront sum, as they do now, or pay an annual property tax of a few thousand dollars instead.
The Victorian Government appears unwilling to join this sensible movement towards change. What grates the most is the unfairness of raising any tax during this time, with the pandemic far from over.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (May 24, 2021)
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