Author: Owen Wilson (Chief Executive of the REA Group)
The Victorian government’s announcement of new and increased property taxes is a major blow to the state’s property market. At a time when the CBD remains void of the hustle and bustle Melbourne is known for, our shops have reduced foot traffic, offices are sitting half empty, and migration is non-existent; introducing regressive taxes can only be described as shortsighted. And this is why every Victorian should care.
The proposed measures will not only stymie economic growth, they will also be at the expense of all Victorians, making renting, buying and selling impossible for many. Why? Because it’s inevitable that while these taxes are placed on developers, investors, and commercial landlords, the costs will be passed on to small businesses, young renters, and frontline workers, who are already struggling enough. Suburbs popular with renters and students, which have already been impacted by the pandemic, such as Carlton or Hawthorn, will feel the pinch. The median house price in Hawthorn, home to Swinburne University, is almost $2.4m.
From January 1, the landlord of any student share house in this suburb is likely looking at about an additional $6000 a year in land tax. This equates to a jump of 19.2 per cent. That’s a cost that in part is likely to come out of the pockets of tenants, which means it’s also less money being spent at bars, restaurants, cinemas and shops. Land taxes in Victoria are already higher than in any other state, and these additional increases follow a slate of other reforms introduced over recent years aimed at landlords. Ultimately, these measures could decrease the level of housing available to lease, which would push rents up, while also affecting the development of new dwellings.
The result would be a further imbalance between demand and supply, again driving both rents and house prices higher. Shelter is a basic human need, and we need to do more to support society’s most vulnerable. Homelessness in Australia is getting worse, not better. In a country as prosperous as ours, this is simply unacceptable. While the Victorian government has a positive plan to invest in social and public housing, these tax hikes are counterintuitive to alleviating the issue. Instead, they have the potential to drive up prices and rents, exacerbating the problem.
From July 1, property valued at or above $2m will see stamp duty increase by 18.2 per cent, which is the equivalent of an additional $20,000. Stamp duty is a regressive, inefficient and unreliable tax and we have been calling for its removal for some time. The phasing out of stamp duty, as proposed by NSW government, should be an important contributor to the recovery of the Australian economy post COVID-19.
Stamp duty penalises the small percentage of people looking to transact on property each year. It’s a volatile tax base with big fluctuations depending on movement in the property market. If people stop buying and selling, the government doesn’t receive the anticipated revenue. This tax impedes, or even prevents people from buying property or moving house. It deters workers from living closer to their workplace or taking up a job opportunity interstate. It also means people are penalised for shifting into more appropriate accommodation
according to their stage of life, such as downsizing from a four-bedroom home when grown children move out.
Victoria’s property industry already pays a whopping 59 per cent of the state’s tax revenue. By reducing the state’s appeal as a place to invest in and develop property, this will have a negative flow-on effect to employment. With one in four Victorians employed by the property and construction sector, new and increased taxes on the sector will hinder jobs growth and impede the state’s economic recovery. Regressive tax regimens have no place in our recovery, particularly if the property sector is to continue to play a fundamental role in rebuilding our economy. As we cycle out of COVID-19, now is the time for bold reform to help the country recover from the first recession in 30 years. State and federal governments need to demonstrate leadership in policy and reform areas that matter — job creation for example. After coming to a virtual standstill during Australia’s toughest lockdown last year, Victoria’s property sector demonstrated resilience, successfully overcoming restrictions. Today, the property market is on the march again. Our industry would welcome the opportunity to work with government to find more sustainable ways to deliver economic prosperity to all Victorians.
Credits to Author: Owen Wilson (Chief Executive of the REA Group)