COVID budget repair hits property investors and holiday home owners

May 2023Karen Millers

Victorians owning second properties, including investment properties and holiday homes, will be asked to make a major contribution to the state’s $8.6 billion of COVID debt levies over the next four years.

Treasurer Tim Pallas said an additional $4.7 billion would be raised over the next four years by the new tax regime. That includes the tax-free threshold for land tax on second properties being slashed from $300,000 to $50,000. This will increase the number of landowners paying the tax from about 480,000 to 860,000.

Annual land tax payments will be increased by $975 plus 0.1 percentage point of the land value over $300,000. The additional cost would be $1,275 per year for land worth $600,000 and $1,675 for land worth $1 million.

Pallas noted land values rising 84% over the past decade and a 25% increase across the state over the last year as factors in the decision to raise taxes.

“These higher rents are due to effectively the laws of supply and demand at play and they’re delivering a windfall to landlords,” he told journalists.

“We think that it’s fair that Victorians with multiple properties make a modest contribution to repaying COVID-19 debt.”

Property Council executive director, Cath Evans said, “Property owners have been asked to foot a significant part of the COVID debt recovery plan”.

Property Investment Professionals of Australia chair Nicola McDougall said the policy was “absurd” and “will no doubt lead to the exodus of investors in Victoria who are already struggling with significantly higher mortgage repayments that dwarf any increases in rent over the past year”.

Julie Toth, PEXA’s chief economist, said the levy has the potential to add directly to rental inflation as landlords try to recoup increased costs, adding to the state’s housing affordability crisis for residential property investors and renters.

Meanwhile, the absentee owner surcharge that applies to foreign investors will be lifted from 2% to 4%.

Pallas said the budget would deliver a $4 billion deficit but return an operating surplus of $1.2 billion by 2026-27. However, the state’s net debt is tipped to hit $171.4 million by June of 2027, nearly one-quarter of gross state product.

“This has been the most difficult budget that I’ve had to frame,” Pallas said.

The government separately announced the abolishment of stamp duty for commercial and industrial properties, expecting the annual tax that will replace it to add $50 billion to the state’s economy.

The government expects house prices to fall by 3.5% across calendar 2023, before higher migration and strong labour conditions drive a 6% increase in 2024.

The budget confirms $23.4 million has been allocated over the next two years to resource the development of a reform program, plus support for councils to “increase housing supply and density in established areas”.

A Roy Morgan survey conducted from 17th May to 22nd May – the day before the budget was handed down – showed support for the Labor government on a two-party preferred basis had increased to 61.5%, up 6.5% points since the state election held in November, ahead of the Coalition on 38.5%, down 6.5%.

Despite a big lead on “better Premier”, Daniel Andrews’ approval was down 5% since November to 52.5%, and disapproval up by the same amount at 47.5%.

Primary vote support for Labor was up 5.3% since the election to 42%, while support for the Liberal-National Coalition was down 6% to 28.5%.

Support for the Greens is up 1% point to 12.5% while support for other minor parties and independents attracts 17% of the vote, down slightly from the election.

Orginally Published: Liz Jordan | Australian Property Journal |23 May 2023

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