Read our Victorian budget submission for further detail on the following issues.
A first glance at the Victorian State Budget sees an election year budget, light on reform, big on expenditure.
The billowing Victorian land market underpinned most of the spending, with $7.1 bn in stamp duties alone. Some say that the property sector was a budget day loser, but when land prices increased by $189bn in 16-17, paying back just over $10 bn reflects only 0.05% of the windfall.
Does that sounds like a good deal to you?
No changes were announced to Land Taxes in terms of the schedule. The pressure over bracket creep has largely been met by the move to annualise land valuations next year.
In terms of Land Taxes, exempting the family home still costs more than the revenue earnt via Land Tax (on investment properties only). Land tax expenditures (exemptions) totaled $4.978bn whilst the revenues collected $3.093.
The First Home Buyers’ Stamp Duty Discount has skyrocketed in terms of tax expenditures, up from $170m in 2011 to an expected $693m. Banks seemed to have been the main winner from this ‘reform’. Since the introduction of the policy by Premier Napthine, loans to Victorian FHB’s have increased from $287,000 to $342,600.
Our drive to address the number of vacant homes piqued an interest in how successful the Vacant Residential Property Tax was in terms of raising (or not raising) revenue. It appears to have been rolled into the Absentee owner surcharge total, raising a combined $115m for this coming year. Time will tell how many investors with vacant holdings self-declare.
The enormous infrastructure spend will be well documented in the press. No doubt the consultancy and construction complex were cheering at the $13bn spend this year alone. The average spend is to more than double the last decade’s average, sitting at $10.1bn p.a over the forward estimates.
Public Private Partnerships are the proposed vehicle of choice. We were disappointed to see no mention of value capture in the budget papers. The use of Rezoning Windfalls as a potential funding vehicle is something we hope to see more of in the future.
No further privatisations were thankfully announced. The sad sale of Land Use Victoria (the Land Titles Office) was held up as a key enabler of the infrastructure agenda.
The Victorian government believes it has the formula to economic success. Record immigration adds fuel to the pump priming of the infrastructure sector. Together these continue to pile pressure on housing (read land) affordability. Thousands more can expect to be locked out from housing.
The question remains. Just how much state domestic product can the deadweight of rising land prices and inaccurate taxation take? The productive sectors of labour and capital continue to lose out, as our recent Trickle Up Economics report highlighted.
Post election, we expect to see a government bold enough to forge ahead with the vital reform to replace stamp duty with land taxes.