• Victorian State Budget 2021-22 | The path to economic recovery is paved with taxes
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Victorian State Budget 2021-22 | The path to economic recovery is paved with taxes

24 May 2021

Matt O'Byrne, Partner, Tax |

The 2021-22 Victorian State Budget handed down on 20 May 2021 has a focus on ‘Creating jobs, caring for Victorians’ - in the hope of putting us on the road to recovery from arguably one of the world’s longest lockdowns as a result of COVID-19.

In the latest budget, Victorian Treasurer Tim Pallas has invested heavily in much-needed services like mental health, health and education. With these expenditures resulting in significantly increased forward estimates, the Government naturally needs to find additional revenue to balance the books. With options limited from the State Government’s perspective, they’ve looked to impose new tax measures in two main areas - property and payroll.

Property and real estate implications

The Treasurer has announced a number of tax measures concerning Victorian property and real estate, which include:

  • New residential property worth up to $1 million will receive a concession of up to 100% on stamp duty
  • An increase of 0.25% in the land tax rate for taxable landholdings exceeding $1.8 million
  • An increase of 0.30% in the land tax rate for taxable landholdings exceeding $3 million
  • The introduction of a premium stamp duty rate of 6.5% for transactions with a dutiable value above $2 million, and
  • 50% tax for rezoned windfalls above $500,000, with the tax phasing in from $100,000.

BDO Partner Matt O’Byrne, who specialises in providing complex tax advice to private businesses, said of the announcement, “The proposed tax measures will likely have a significant impact on the Victorian property industry and the broader Victorian economy as we continue the economic recovery from COVID-19. With alternate investment opportunities easily accessible, including property development opportunities in other Australian states, the proposed tax measures may lead to property developers and investors looking for more attractive investment options outside of Victoria. It also goes against the trend in some other states and territories to phase out stamp duties.

“To date, the Victorian property industry has been resilient in the face of COVID-19 and provided a number of job opportunities for Victoria and it is therefore critical that the Government continue its support for the sector. If the tax measures are to proceed, it’s imperative the Victorian Government engages with the Victorian (and Australian) property industry to ensure the proposed tax measures are appropriate for businesses, investors and home buyers, and achieve the desired economic benefit for Victoria,” he said.

“With the expected proposed measures, property developers, investors and home buyers should take the time now to understand the proposed new tax measures, and the impact they could have on their current and future plans.”

Payroll tax

Victoria’s large employers will largely foot the bill for the much-needed mental health reform being introduced by the Government. A ‘mental health levy’ will be included as a surcharge on payroll tax for Victorian businesses that pay more than $10 million in wages, and doubles to create a ‘super surcharge’ for businesses paying over $100 million in wages. This levy is expected to be worth $3 billion over four years.

BDO Partner Jason de Boer, said of the proposed levy, “The Government’s substantial investment in the mental health system will no doubt be a welcomed initiative for all Victorians. However, employers already bear significant associated costs - estimated by the Government to be $1.9 billion per year in lost productivity and workplace injuries. At this already vulnerable time for the private sector, some who are still recovering from the impacts of 2020’s lockdowns, the additional payroll tax burden has the potential to stifle our much-needed wage growth. Many may worry that this could make Victoria a less attractive destination for businesses.”

For smaller organisations there is some potential relief, with the payroll tax-free threshold being lifted to $700,000 earlier than originally planned; and the regional payroll tax rate to be cut from 2.02% to 1.62% from 1 July 2021, then again to 1.2125% from 1 July 2022.

Other changes, at a glance

Additional changes - beyond those listed above - handed down in this Budget were focused on helping Victoria, and Victorians, to recover from the impacts of the pandemic. They include:

  • A further $3.8 billion (beyond the $869 million committed in last year’s budget) invested to re-build the mental health system, addressing the 65 recommendations of the Royal Commission into Victoria’s Mental Health System - creating 3,000 jobs.
  • Hospitals and the healthcare system have been pledged $7.1 billion in support. This includes support to help protect us from the pandemic; 200,000 days of support to ensure we continue to train and support the next tranche of healthcare workers; building 10 rural hospitals; and a range of early intervention programs.
  • Support for young Victorians has led to a commitment of $167 million to three-year-old kinder, saving money for young families and supporting 6,000 jobs.
  • $354 million has been pledged to support the 227 recommendations from the Royal Commission into Family Violence, protecting women and children; plus $1.2 billion to help keep vulnerable families together (including 246 new jobs for child protection practitioners).
  • Furthering their commitment to truth and Treaty, the Government committed $448 million to the process underway with the First Nations people of this state.
  • The Treasurer continued the State’s investment in infrastructure, with a further $144 billion committed to capital projects either started or about to commence.
  • Other areas receiving support include tourism, events and screen industries; firefighters and bushfire affected areas; and small and medium sized businesses through tax cuts.

If you’d like to discuss the changes outlined in this article and what they might mean for your situation, please contact BDO’s team of specialists in Melbourne.