It comes as no surprise that COVID-19 has had a significant impact on Victorian State finances. Total taxation revenue for 2019-20 is $1.16 billion lower than the estimate stated in last year’s Budget.
A reduction in payroll tax and land tax revenue in 2019-20 accounts for the majority of the shortfall, that being nearly $0.95 billion.
It is interesting to note that land transfer duty revenue increased by $0.25 million in 2019-20 as compared to the 2019-20 estimate announced in last year’s Budget. This is likely due to better than anticipated performance of the property sector before the pandemic started to impact the volume of transactions. The initial impact of the pandemic became evident in early April and many property settlements that occurred between April and June would have been under contract prior to the start of the pandemic.
The forward estimates reflect the real impact of the pandemic on the State’s finances, and in particular, on the major taxation revenue streams. Treasury expects an $8.7 billion decline in revenue between the three major taxation revenue streams out to 2022-23 when compared to the 2019-20 forward estimates.
Land transfer duty revenue alone is expected to decrease by $1.7 billion in 2020-21 when compared to the 2019-20 forward estimates. This is due to the significantly reduced activity in the property sector during the pandemic, the impact that the pandemic has had on buyers’ ability to enter the property market, and the impact on property prices. In addition to this, in order to encourage activity and boost transaction volumes, the Government has announced stamp duty concessions that will impact stamp duty collections in the current financial year and potentially beyond.
Treasury expects the pandemic to continue to impact property transactions over the next few years, with land transfer duty revenue to return to pre-COVID levels in 2022-23 and land tax revenue returning to pre-COVID levels a bit later.
However, as evidenced by the above graph, the government’s own estimates show that the reduction in property taxes collected will only be a temporary aberration and that tax collections will soon return to their exponential growth trajectory, providing further evidence of the significant contribution the property sector makes to the Victorian economy and its reliance on property taxes to support the government’s large infrastructure spending program.
It remains to be seen whether the government will follow NSW’s lead in respect of their proposed reform of the stamp duty and land tax system. Although no such announcement has been made in this year’s Budget, the government does have 2 further years of its current term and next year’s Budget in a post-pandemic environment could provide the platform it needs to commence such a significant reform measure.
Contact your Pitcher Partners representative if you have any queries concerning the Victorian Budget 2020-21 measures.