Taxed to surplus: Middle market business carry Victorian budget while missing out on benefits
Victorian businesses will help deliver the State Government’s long-awaited budget surplus this year – yet they remain an afterthought when it comes to receiving any of its benefits.
Total tax revenue for 2026-27 is now expected to come in at $43.2 billion, then grow by an average of 5.1 per cent a year over the forward estimates.
But businesses and the property sector have been left to prop up the Budget – and this year push it into surplus – while receiving no material support.
The total tax take is expected to be $589 million lower than what was forecast just 12 months ago, but payroll tax revenue remains constant, and there were minor increases in the collection of COVID Debt Levy on bigger businesses and the Mental Health and Wellbeing Levy.
Payroll tax, which inhibits employment, is now responsible for about 23% of the State Government’s revenue and is tipped to continue to deliver a similar proportion of revenue out to 2029-30.
Payroll tax receipts remains one of the most frustrating taxes for middle market businesses, as confirmed in Pitcher Partners Melbourne’s pre-Budget survey.
Payroll tax has the highest net negative impact of all taxes on business competitiveness, according to almost 55 per cent of business leaders surveyed.
Seven out of 10 respondents perceive the cost of doing business in Victoria as higher than other states. As one put it, “rising interest rates and the cost of utilities has trebled in the past few years, and the cost of labour has gone through the roof.”
State taxes are now among the top challenges for Victorian businesses, and on par with inflation.
For the property sector in particular, there is no relief in sight, other than a short-term extension of the off-the-plan duty concession for new apartments, units and townhouses until 21 April 2027 This will help some developers move existing stock but is unlikely to encourage any new investment into Victorian housing.
Property owners, investors and developers contribute $10 billion in land transfer duty, $6.4 billion in land tax, and a scattering of other amounts associated with the COVID Debt Levy for Landholdings, improvement and planning levies and the Windfall Gains Tax. The sector can expect to shoulder an additional burden by 2030.
Land tax is set to grow from $6.4 billion to $7.4 billion over the forward estimates, while land transfer duty is tipped to rise $2.4 billion to $12.4 billion by 2030.
Some of the assumptions that are being made over the forward estimates feel overly optimistic, given the economic conditions that Victoria is facing. A comparison to the revenue forecast in the past two budgets shows land tax consistently delivering less revenue than anticipated.
The Windfall Gains Tax also continues to underperform – while successfully deterring much needed property investment. Windfall Gains Tax was forecast at $135 million for 2025-26 and came in at $54 million – a 60% miss. The 2026-27 forecast is $97 million.
The middle market is facing the same inflationary pressure experienced by individuals, yet there is virtually no real investment in measures that could alleviate costs or improve business outcomes.
Businesses have been patient in the five years since COVID, even as they were forced to absorb the cost of new and increased levies and imposts. They are entitled to wonder why, given the contribution they make, they continue to sit at the bottom of the government’s priorities.
