They say there’s no such thing as a free lunch and it seems there’s no such thing as a free pandemic… especially if you’re unlucky enough to own a property under the Victorian government regime.
Melbourne is struggling through its fifth lockdown and small to medium businesses in the hospitality and tourism sectors are feeling the full force of the empty streets, along with the heavily casualised workforce, who have no idea when their next shift will come or how to pay rent and electricity without an income.
And while there’s no doubt there’s a clear a health imperative to calling a lockdown, the restrictions are having a catastrophic impact on the Victorian economy. Businesses are without the federal government’s JobKeeper to support wages bills, and the measures introduced to compel commercial landlords to reduce rents have expired. Commercial tenants are paying full rent and the cost of snap shutdowns is prohibitive, so, many are closing their doors.
Small Business Australia says the cost of a seven-day lockdown is around $1 billion. That’s a price tag that should make any state premier wince.
For Victorian Premier Dan Andrews, seeking a State Budget surplus meant he was forced to find someone to foot the bill to bring the budget back into the black and this meant pulling out the tried-and-tested tax hike.
For landholders, both homeowners and investors, this has been a particularly painful budget. The Government has introduced a brand new tax, called the stamp duty ‘premium’, which is a 6.5 per cent duty on property transactions above $2 million.
Also, stamp duty hikes will drive up revenue by almost 13 per cent this year alone, according to property expert Michael Yardney.
And there is a new tax on property investment and development, called a Windfall Tax, which states any value gained from rezoning will be taxed at 50 per cent.
The land tax increases of 0.25 percentage points on properties valued between $1.8 million and $3 million, and 0.3 percentage points on properties valued at more than $3 million, will raise more than $1.53 billion in revenue over the next four years, according to Michael Yardney.
Stamp duty addiction
In fact, Yardney observes, “it is a budget that is light on policy reform, and heavy on tax hikes that could put at risk the economic recovery Victorians are working so hard to secure”.
At a time when other states are moving away from the volatile stamp duty as a revenue stream, Victoria seems to be ramping up its reliance on the tax as some sort of saviour.
All this simply to mask the ineptitude of the Andrew’s government and their inability to arrange sound hotel quarantine amongst their many failures and the “creeping assumptions” that he and all his mates used when facing the recent parliamentary enquiry.
Sadly, whilst Andrew’s and Co. thought it still good enough to grant themselves pay rises, many small businesses simply can’t use “creeping assumptions” to maintain their livelihood!
There also appears to be a “mask” in lockdowns simply to cover up the public health system and potential failures of care, based on the under-resourcing of facilities and nurses for the like.
So property owners, I hope you are happy to pay for Mr Andrews’ failures, because this is what is already happening.
When house prices fall, stamp duty revenue falls. When prices rise (as they are right now) revenues similarly rise.
There has long been a school of thought suggesting a more stable form of taxation – a land tax – that doesn’t experience the same peaks and troughs as stamp duty and house prices, would be preferable for state government coffers.
But wait, as I say that this may be a reasonable solution, Mr Andrew’s has decided that he will increase the land taxes for those evil property investors as well.
The land tax increases of 0.25 percentage points on properties valued between $1.8 million and $3 million, and 0.3 percentage points valued at properties more than $3 million, will raise more than $1.53 billion in revenue over the next four years.
The change will apply to both the general and trust surcharge rates.
Impact of property tax gouge
Victoria’s Real Estate Institute (REIV) has called the taxes an assault on homeowners. CEO Gil King has said that these measures would add pressure to the property sector, already one of the most heavily taxed sectors delivering around 40 per cent of the state budget’s revenue.
For those who work in the property sector, or in a related field, a rise in property taxes is not new. Dan Andrews is far from the first Premier to treat the property sector as his own personal ATM, using it to fund other budget shortfalls, but if he continues to take this approach, the impact of the COVID lockdowns is amplified.
Gil King said, “At a time when commercial CBD properties are struggling to find tenants, the increased taxes will put an extra burden on commercial real estate, which has already had to grapple with COVID-19 lockdowns throughout 2020.
“The vast majority of State Government COVID-19 support was directed to renters, not property owners – these taxes will be the final straw for many. It is also highly likely that increased property taxes will flow on as rent increases.”
While it’s undoubtedly the pandemic that is leaving a Mac truck-sized hole in the state budget, there’s an argument that these lockdowns are unnecessary and, on balance, ineffective way to manage the economy or the population’s health risks.
It is appropriate and right that the health of all Victorians factor prominently in decision-making, but equally, their livelihoods and the state of the economy should also be a key factor.
Taking the position that property owners can be taxed ad infinitum is reckless and dangerous. The real estate industry is a crucial to the foundation of Victoria’s financial stability. Mr Andrews and his cohort may soon discover that killing a goose they believe is an endless source of golden eggs will do him no favours among voters.
The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.