Victorian property investors are the firm losers coming out of the 21-22 State Budget, with significant tax hikes on both stamp duty and land tax going ahead despite significant backlash from affected stakeholders and business groups.

Under the new state budget, property transactions over $2 million will be subject to a $110,000.00 duty, plus an additional 6.5% of the dutiable value in excess of $2 million. Land tax will be increased by 2.5% for taxable landholdings between $1.8-$3 million, and a 0.30% increase for taxable land holdings over $3 million.

Developers will be hit hard by a proposed ‘windfall gains tax’ that will apply to properties that benefit from an increase in value due to council rezoning. From July 2022, the tax will apply where the value of the property increases by more than $100,000.00. A $500,000.00 increase in value will be taxed at a whopping 50%. This ‘windfall’ tax will have significant and costly consequences for property developers where their land is rezoned.

The Treasurer’s speech leaves little ambiguity surrounding the motivation behind the financial blow about to be dealt to Victoria’s property investors. “While most of us struggled and endured enormous sacrifice last year, that struggle was not universal – there were small sectors of our community who made significant profits out of the disruption. Indeed, it’s fair to say there have been some big winners from the pandemic – and after a year defined by widespread sacrifice, it’s only fair that they pay their share. That’s why we will increase taxes on top-end property owners who have benefited from soaring real estate prices.”

However, with the extraordinary demand being placed on Victoria’s housing market, some have predicted that the median housing price across multiple Melbourne suburbs will likely rise into the $2 million bracket. This could have long term consequences for the number of households that will be ultimately impacted by the increase to stamp duty and land tax.

The budget changes fly in the face of previously expressed sentiments by the Victorian government to explore ways to phase out stamp duty, going so far as to contradict the Treasure’s own stance on state funding reform from less than 12 months ago, with the move described as a step in the wrong direction in terms of effective tax policy. The Victorian state government is facing political backlash from the state opposition who have criticised Victoria’s position as the nation’s highest-taxing jurisdiction. In a world of post-covid recovery, some have raised concerns that the move in tandem with rising property prices will deter interstate and overseas investment in Victoria’s property market, which has often been cited as a crucial pillar of Victoria’s economic recovery.