June 3, 2021 by Dymphna

Proof Victoria’s budget was a mistake

Victoria’s lockdown adds insult and injury to insult and injury.

Poor Victoria.

I am so so so sorry for you!

Victoria had its lockdown extended for another seven days, and Victoria really has to be wondering when this nightmare will end.

What’s worse, it comes hot on the heels of a terrible budget – a budget that’s really going to hurt the economy and the property sector specifically.

So I want to talk about that budget here, and send all my sympathy to Victorians who are really having a rough trot at the moment.

So a lot of people are calling it a ‘disaster budget’. And look, to be brutally honest, I think I agree.

I’ll explain why I think it’s such a dud for the economy and for property in a sec, but just to show I’m not being biased or ‘political’, I’ll give the Andrews government some credit where credit’s due.

They did bring in some good policies to support the high-rise construction sector. After immigration and student demand got hammered, we ended up with a large stock of unsold apartments – some people in the industry think there might be as many as 10,000!

So the government has stepped in to some degree, by:

  • waving stamp duty on newly completed homes that have been unsold for a year or more;
  • extending stamp duty concessions to new off-the-plan purchases worth up to $1 million from 1 July; and
  • extending the 50% stamp duty discount on new homes in the Melbourne local government area that do not qualify for the full waiver.

They also announced they would mop up some of the excess and turn it into social housing.

So I think this a pretty sensible and a good thing to do.

But still, it doesn’t change the fact that the rest of the budget was a bit of a shocker, with a bunch of new taxes on property particularly concerning. These taxes included:

  • A 19% increase on land tax for properties worth between 1.8 and 3 million dollars. Victoria already has the highest land tax and stamp duty in the country.
  • A 13% increase on land tax for properties worth over 3 million,
  • An 18.2 % increase on stamp duty for properties worth up to 2 million,
  • There’s also a new thing called a ‘Windfall Gain Tax’. The extra money that would have been made from rezoning will now be taxed at 50%. This will cut development from areas that desperately need new housing and could add up to $25,000 to the price of a new housing lot.

It looks to me like the Victorian Government is behaving like a hungry shark!

These tax increases will hurt self-funded retirees and deeply impact housing affordability, especially in areas that need it most.

Mum and Dad investors are going to be hard hit. And while they won’t sell up and move out, because the capital gains tax is also baying at their heels, it means that any new investors coming from out of state are likely to be put off.

These taxes will result in higher rents and better returns for those that stay in the market, but the costs will be borne by those entering and holding the market.

And those hoping to keep their jobs.

Surely the Victorian Government wants to keep people in employment. This will do the reverse.

More people work in the property industry in Australia than in mining and manufacturing combined, and property employs 25% of Victorians.

The property industry relies on the development and construction of new housing to maintain this level of employment.

Without new developments, there aren’t any jobs for that 25% of Victorians.

Way to go Vic State Government!

This could potentially derail the Federal Governments’ efforts to reduce the current unemployment rate to something in the 4s.

As a result we may see businesses packing up and leaving Victoria for other states.

Potentially for good.

I guess the extra $380 million per year in the governments’ coffers will be worth it. Maybe they can spend that on affordable housing. Or welfare for the newly unemployed when all the major corporate businesses leave the state.

But I don’t see it playing well.

So I dunno. What do you reckon? Is this a good move by the Victorian State Government or not?

Could you see yourself buying into Victoria now that you know about all these tax increases?

Or would you, like a lot of people I know, just decide to invest elsewhere?