Treasurer Tim Pallas expands vacant land tax, tells developers to use land or sell it

More tax changes have been revealed hours after Treasurer Tim Pallas blindsided Premier Jacinta Allan’s office in what’s been described as a “chaotic transition” from Daniel Andrews to Ms Allan.

Tuesday’s tax announcement was Tim Pallas’s first initiative under the new Allan government and was slammed by the Property Council. Picture: David Crosling

The Allan government is looking at clawing back more money with additional tax changes after its bombshell announcement of a new hit on certain holiday home owners.

The latest tax changes were revealed hours after Treasurer Tim Pallas blindsided Premier Jacinta Allan’s office by announcing the state’s Vacant Residential Land Tax would be expanded to apply to all of Victoria instead of just Melbourne, during a speech at an industry breakfast.

It’s understood Ms Allan’s staff were caught off guard by the move.

Mr Pallas later in the day outlined further tax measures in a meeting with property stakeholders.

Mr Pallas blindsided Premier Jacinta Allan’s office. Picture: Luis Enrique Ascui

He told them of proposed changes to the Windfall Gains Tax – which applies when land is rezoned and its value skyrockets – and the state’s land tax scheme which would increase the burden on developers.

“This will disincentivise the supply of new housing, which is what the government has apparently forgotten in the two weeks since the release of the housing statement,” a leading property figure said.

Mr Pallas refused to rule out further new taxes.

“I’ve said this consistently that as a government we will not chisel in granite our taxation system,” he said.

Allan was selling her new social housing policy when Pallas announced the tax. Picture: David Crosling

“Government has to adapt its taxation system to deal with the challenges the community confront and sometimes to amend the behaviour that we see as contrary to the interests of the wellbeing of the vast number of the population.

“At the moment, our number one priority with unshaking determination is to get more supply into the market and to get property that are currently vacant put into productive use for people who are desperate for a home.”

Mr Pallas yesterday announced the government would begin taxing all homes across the state that are vacant for more than six months from 2025. It means holiday home owners will be slugged an extra 1 per cent of the capital improved value of the land – or $5000 for every $500,000 – unless they can prove they lived at the property for at least four weeks of the year or rented for at least half a year.

Multiple government sources said Ms Allan’s office was blindsided by the timing of Mr Pallas’s announcement.

Property Council of Australia Victorian executive director Cath Evans. Picture: Jake Nowakowski

The Herald Sun has confirmed the proposed reforms were taken to cabinet on Monday but an announcement was not expected until later this week.

That the Treasurer announced the changes on Tuesday morning took some within cabinet by surprise.

The blindside has been attributed to a “chaotic transition” from former premier Daniel Andrews to Ms Allan.

It is the third new tax on holiday home owners following introduction of a Covid levy in May’s budget and last month’s Airbnb tax as part of the government’s ambitious housing statement.

Allan was sworn in as Victoria’s 49th Premier last week. Picture: David Crosling

A second component of the tax expansion will require residential-zoned properties in metropolitan Melbourne to be developed within five years.

It comes after it was revealed Victoria is paying more per person in tax than any other state in Australia.

In 2021-22, Victorians paid an average of $5638 to both levels of government, compared to $5537 in NSW, according to the Australian Bureau of Statistics.

Arriving at parliament on Tuesday Assistant Treasurer Danny Pearson said he had no idea about the expanded tax.

The tax announcement – Mr Pallas’s first initiative under the new Allan government – was slammed by the Property Council. Victorian executive director Cath Evans said it was inconsistent with the recently signed partnership between the state government and the housing industry.

“The partnership agreement clearly sets out the obligations of both government and industry to work collaboratively together to help resolve some of these very challenging economic times that we face in delivering housing stock to Victoria,” she said.

“The industry went into this partnership in good faith with the understanding that there would be consultation of any reforms going forward.

“It’s clear that without that consultation being followed there has not been good faith (discussions) … in the execution of the agreement.”

Ms Allan said the tax change would help the government achieve its massive target of 800,000 new homes over the next decade.

“We’re looking at everything we can do to build more homes,” she said.