Victorian Budget Perspectives
Taken from our fortnightly Evolving Economics enews.Subscribe here
Victorian Treasurer Tim Pallas has delivered a great set of budget measures which will improve the resilience, fairness and efficiency of Victoria’s tax system.
This budget features a number of changes Prosper has advocated for years. Now that the Victoria is facing a stamp duty decimation, savvy Tim has figured not let a good crisis go to waste.
Prosper has long contended that the ability to agglomerate a neighboring property into a principle place of residence, thus avoiding land tax, was a savvy form of land banking that must be checked. We nicknamed it the ‘tennis court exemption’ and were pleased to see it removed. A stronger land tax base will key going forward into a period of declining stamp duty revenue.
The rort that saw Melbourne’s GPO land valued at just $1 due to heritage restrictions has also been closed. Prosper featured in a recent article highlighting these injustices.
On the counter-side Pallas has again erred in giving stamp duty discounts, this time on industrial and commercial land in regional and rural areas. A supposed job creator, a 10% stamp duty discount will be incrementally added over the next five years to total 50% by 2023. As we have witnessed with the First Home Buyer Stamp Duty exemption for properties under $600,000, FHB mortgages have actually increased since this policy trajectory was announced in mid 2011.
We expect this industrial and commercial discount will be swallowed up by higher land prices, just as we have seen for first home buyers. Banks are the big winners, with a reduction in state revenues a boon to their bottom line.
If Victoria really wants to incentivise jobs, it must lower taxes on the productive sector and increase them on land. Victoria would have been better off to abolish payroll tax in regional Victoria than cut stamp duties. At least regional payroll tax will be one quarter of the metro rate by 2022-23. Remember, barely 50% of the nation’s GDP is available for labour and capital once land rents and taxation taxes their fill.
Victoria will cease to be the only state without royalties on gold mining. While every other miner is expected to share some of the value of the State’s mineral endowment, the gold miners in Victoria had a free ride. As foreign investment ushers in another Victorian gold boom, now is the time to ensure the public receive a fair share. Eureka we cry!
The royalty rate is not excessive – 2.75% for miners that extract more than 2500 ounces per year. WA by comparison has a royalty rate of 2.5%, which could have been raised to 3.75% if not for the Mining Industry backlash and opposition in the upper house.
By contrast, Prosper has previously has suggested a 10% royalty regime replace the ineffective Petroleum Resource Rent Tax.
No doubt the industry will bluster, but do we really believe they weren’t prepared for Victoria to charge a gold royalty? After all, securing resource rents for public benefit is best practice governance. And at least one Victorian gold miner agrees: Navarre Minerals managing director Geoff McDermott said the shock royalty slug was “not a big deal” as “at the end of the day the minerals belong to the state and we want to pull our weight like other industries.”
Finally, an increased foreign buyer land tax and stamp duty charges. Foreign real estate buyers are a soft target for the government and land tax base. However these surcharges may be squeezing blood from a stone – at current rates we are already collecting most of the land rent from the existing owners. Foreign landowners will either sell to domestic buyers or find more creative lawyers to ensure they can hold property exempt in someone else’s name. Driving out speculative foreign investment is a win for local home-buyers, and housing affordability. Insiders understand it also behaves as a form of protectionism for local investors.
All in all this budget is a step in the right direction and reinforces the effectiveness of Prosper’s advocacy. Join us as a member today!
And keep an eye on ABC’s The Business, for an interview with Karl Fitzgerald on our latest Speculative Vacancies report some time this week.