These property-based taxes are a key reason for the Andrews Government’s large operating surplus projected over the forward estimates period. These taxes will continue to be the main source of revenue for the government into the future.
The 2015-16 year saw the introduction of the foreign purchaser additional duty and absentee owner land tax surcharge in Victoria. This was the beginning of the state government’s initiative to tax foreign property developers and investors, and it has now been compounded by the government’s announcement that the rates of both surcharges will more than double in 2016-17.
Victoria is the only state that imposes these taxes.
In addition to the increases in the foreign investor surcharges, the government will commence a new tax compliance program which is expected to target non-compliance in the land tax and stamp duty areas.
In the land tax area, the government will focus on non-compliance in relation to the principal place of residence exemption, absentee owner surcharge, business partnerships that own land, and land held in trusts that have not yet been declared to the State Revenue Office.
These areas are particularly relevant to small to medium size business operators and high wealth individuals. Please contact us if you believe you are at risk of an SRO review in respect of the above areas.
The Budget projects additional tax revenue of approximately $200m over the forward estimates as a result of the SRO's compliance program.
State tax reform again became a popular topic of discussion among economists and lobby groups in the lead up to the Budget. The reform discussions continue to focus on reducing or abolishing inefficient taxes such as stamp duty and payroll tax, with a broad-based land tax that captures the family home as the likely replacement.
However, apart from the ACT, which has a long term plan of phasing out stamp duty and replacing it with a land tax system, no other state or territory government has taken steps to implement such a concept. At this stage there is no indication that the current Victorian Government is considering such a radical change and there is nothing in the Budget to suggest that such a change is being considered.
As the chart below shows, payroll tax, motor vehicle related duties and registration fees, gambling taxes and insurance taxes make up the majority of the balance of Victoria’s tax base. This excludes Victoria’s allocation of GST revenue and money collected from fines, dividends, and other revenue sources.
While it is positive to see that the state government has pledged to apply the surplus revenue from property related taxes to infrastructure, health and education, which in turn will help grow the Victorian economy and middle market businesses, it is disappointing that the government has again opted not to put tax reform on the agenda.
Instead, the current government’s reliance on property related taxes has intensified, with the increase in the rates of foreign purchaser additional duty and absentee owner land tax surcharge, which puts Victorian businesses at a competitive disadvantage compared to businesses in other states and territories.
On this basis, and due to the fact that historically state taxes such as stamp duty and payroll tax are prone to fluctuations in economic activity, we believe that taxation reform should be a higher priority for the Andrews Government.