Middle market businesses denied much needed tax relief in State Budget
Victorian Treasurer Tim Pallas handed down the State Budget 2024-25, his 10th budget, on the afternoon of 7 May.
With an increased deficit of $2.2bn now projected for the 2024-25 financial year, and the state’s net debt expected to blow out to almost $188bn by the middle of 2028, this budget is focused on reigning in spending by delaying some major infrastructure projects and scrapping some existing government programs.
Contrary to the projected decrease in government spending, the government’s revenue from state taxes is set to continue its steady upward trajectory. Total tax revenue is expected to increase by more than $8bn over the next five years, which represents a 22% increase. Payroll Tax and taxes on property such as stamp duty and land tax will continue to do the heavy lifting, and the revenue from those taxes is projected to increase by 21% and 25% respectively over the forward estimates period. Taxation revenue will continue to make up more than 40% of the government’s total revenue base.
With the current focus at both a state and federal level on cost-of-living relief, there is no cost-of-doing-business relief in this year’s budget. Many middle market businesses are doing it tough at present due to the combined pressure from inflation, higher interest rates and labour shortages. Some form of tax relief would have been welcomed by those businesses, to incentivise them to continue investing in Victoria and employing more Victorians.
Property developers, in particular, are dealing with a very difficult set of economic circumstances at present and the ever-increasing tax burden they have faced over the past 10 years hasn’t helped them or the government’s plan to build more affordable houses for Victorians to live in.
If the government is serious about its housing affordability strategy it needs to address the developer feasibility elephant in the room head on – stamp duty, land tax, Windfall Gains Tax, the Growth Areas Infrastructure Contribution and a host of other state and local government charges that erode reasonable profit margins. In order to re-incentivise investment back into the residential housing sector, the government should start by re-introducing the off-the-plan duty concession for investment properties, provide land tax discounts for landowners who consistently make their properties available to tenants and scrap the foreign duty and land tax surcharges that have scared off foreign investors.
The State Taxation Amendment Bill 2024 released on 14 May 2024 includes amendments to the Land Tax Act 2005 in respect of the holiday homes exemption from the Vacant Residential Land Tax for residential land owned by trusts and companies where relevant requirements are met. A detailed analysis of the amendments and their impact can be found here.
