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Why Victoria’s land tax is bad news for investors and tenants
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“The increased costs for investors could negatively impact housing supply and hike rental payments for tenants”

Victoria’s state budget included a new policy that would see land taxes temporarily increase over the next 10 years, which, according to experts will ultimately hurt property owners and tenants.

The state government also plans to cut the tax-free threshold for land tax from $300,000 to $50,000. This change will see additional annual payments of $500 for properties up to $100,000 in value and around $975 for those up to $300,000. Properties exceeding $300,000 will see annual land tax rise by $975 plus 0.1% of the value of the land over the threshold. This was announced together with the changes to stamp duty for non-residential properties.

PEXA chief economist said while the stamp duty reforms is a welcome move, the COVID-debt levy for residential housing through the changes in land tax would see many landowners and renters bear added financial burden. ‘PEXA’ stands for Property Exchange Australia and is an Electronic Lodgment Network (ELN). 

“The newly announced levy has the potential to add directly to rental inflation as landlords try to recoup increased costs, only adding to the state’s housing affordability crisis for residential property investors and renters,” Pexa said.

Overall, the changes will increase the annual land tax paid by an estimated 860,000 Victorian landowners, including people who own more than one home — with 380,000 landowners now paying land tax for the first time as the threshold was reduced.

“If landlords were to pass on the full cost of this levy, that could mean an extra $1,000 a year in rental repayments for Victorian tenants every year over the next decade,” Pexa  said. Property Investors Council of Australia (PICA) said the new policy on land tax would result in hardworking Victorians paying for the government’s “incompetence” for decades. “This is what happens when you have so much debt as well as continued economic mismanagement and self-serving governance,” they said. “Victorians will be paying for the government’s incompetence for not just years, but for decades.” An investor with land holdings of around $1m will pay around $2,000 in extra per year — or about $20,000 over the next decade. This figure, will continue to increase along with land values throughout the period time. “Anyone looking to buy property in Victoria will look elsewhere, because this policy says that Victoria is closed for business,” they said. “Borderless investors will simply shop elsewhere where they are not being slugged by sky-high stamp duty and land tax, which will have a hugely detrimental impact on rental supply.” 

For Property Investment Professionals of Australia (PIPA) said the new land tax grab seems to be modelled on the Queensland Government’s similar failed policy last year. “It does seem like the Victorian Government has taken an illogical page out of the Queensland Government’s ill-fated and investor-focused land tax playbook from last year, and we all know how that worked out for them,” PIPA said.

“This absurd policy 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.” PIPA said it is “illogical” for any state government to implement policies that would only worsen the critical undersupply of rental properties. “This is yet another example of politicians having no understanding of how bad policy impacts investor behaviour, especially those aspirational and hardworking property owners who are set to be slugged the most by this latest financial impost.”

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