“You can put money into different funds and call it different things,but it’s still fungible. The COVID Debt Repayment Plan is just a way of describing the tax increases that are in the budget to pay for expenditure commitments.”
The government will also capture 380,000 new taxpayers by lowering the threshold at which land tax kicks in from $300,000 to $50,000 for Victorians who own more than one property.
Under theproperty tax changes,people who own more than one property will face a new annual fee on their land tax bills starting at $500 for a piece of land worth between $50,000 and $100,000. Owners of land worth between $100,000 and $300,000 will have to pay a temporary fixed charge of $975. Those with property worth more than $300,000 will pay a $975 fixed charge plus 0.1 percentage point of the land value.
The Urban Development Institute of Australia warned the tax changes would hurt housing affordability by driving up rents and disincentivising development.
“We understand the need to address the structural issues with the state’s finances,but raiding the pockets of landowners is not the way to do it,” president Tom Trevaskis said.
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Pallas denied the land tax increase would lead to another rent hike,claiming the cost was “relatively small on landlords in the grand scheme of things”.
“These higher rents are driven effectively by the laws of supply and demand at play,and they are delivering a windfall to landlords,” he said. “We think that it’s fair that Victorians with multiple properties make a modest contribution to repaying COVID debt.”
Elinor Kasapidis,senior tax policy manager at accounting body CPA Australia,said Victoria was the nation’s least attractive state to buy an investment property and the government was “failing to read the room”.
“We are appalled by this decision,” she said. “We encourage the government to reconsider.”
Kasapidis said many landlords would be unable to afford the additional cost of the COVID debt levy.
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“On top of wall-to-wall rate hikes for nearly a year,this additional cost will push some mum-and- dad landlords into the red,” she said. “To foot this bill,they will be forced to increase rents at a time when there is a national housing affordability crisis. Make no mistake,renters will end up footing the bill. This will exacerbate Victoria’s rental stress.”
The state government will bank an extra $2.1 billion from “savings and efficiencies” in the public service,on top of the $500 million in savings it pledged ahead of November’s state election.
Pallas promised to restore the public sector back to pre-pandemic levels by targeting back-office staff and consultants. However,the cuts will do little to rein in the state’s mounting public sector wage bill which is expected to hit $38.3 billion by 2026-27,up from $33.9 billion this financial year.
More than 1000 logging workers from regional communities will also lose their jobs with the state governmentbringing forward the end of native forest logging to the end of the year. A $200 million support package will be put in place to help affected communities.
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As part of its tax reform agenda,the Andrews government will also abolish stamp duty for commercial and industrial properties,replacing it with an annual property tax in a move that Pallas said would remove growth barriers for business.
The government claimed the change,which comes into effect on July 1,2024,would provide a $50 billion economic boost and the move was welcomed by the Victorian Chamber of Commerce and Industry,which worked with the government on the package. Chief executive Paul Guerra said it would accelerate building upgrades and stimulate investment.
But the chamber warned the government against introducing any barriers that would increase costs to Victorian businesses or make the state less competitive.
“These additional taxes on medium to large businesses in particular will be difficult to absorb given they are already operating in a tough economic climate with increased costs in energy and supply chain,” Guerra said.
Under the changes to payroll taxes,more than 6000 large employers will pay more tax,with businesses with more than $10 million in wages hit with a 0.5 per cent levy from July. Larger businesses with a payroll bill above $100 million will cop an additional 0.5 per cent levy paid on the Victorian share of wages,although the measure is scheduled to expire in a decade.
Pallas said there was a profit spike during the COVID-19 pandemic. “We were there when those industries needed us,” he said.
The payroll tax changes will hit the same businesses that were impacted by a tax hike introduced in 2022 to cover the cost of the state’s ballooning mental health services as well asa foreshadowed lift in WorkCover premiums.
Hospitals,charities and local councils are among those exempt.
CPA Australia senior tax policy manager Elinor Kasapidis said while Victorians had largely accepted the government had to make tough decisions during COVID-19,she warned against paying back the debt too soon.
“Victoria is rushing to pay back its debt far too soon and this time it’s Victorians’ financial well-being that’s at risk,” Kasapidis said.
“This budget threatens to make a bad situation worse. Victoria used to be the place to be,now it’s the place not to be.”
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Pallas said any government job cuts wouldn’t affect frontline workers and pledged to slash spending on consultancies and labour-hire firms over the next four years.
Opposition Leader John Pesutto said the budget showed Victoria was broke and described the budget as “mean and nasty”.
"Every Victorian will pay some part of the price for Labor’s incompetence,"he said.
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