Gone in five days: How to overturn a tax and infuriate the Premier

When Premier Daniel Andrews strolled towards the press pack gathered at the rear carpark of the Victorian Parliament on Wednesday, nobody expected him to announce the shelving of a major housing reform his government had announced just a few days earlier.

Nor did anyone expect him to launch an attack on the chief executive of the Property Council’s Victorian branch, Danni Hunter, who he accused of not “honouring” an agreement to support a tax that would raise about $800 million a year from the property sector for new public housing. In exchange, the property industry was offered reduced red tape to speed up planning approvals and boost profits.

Property Council of Australia Victorian executive director Danni Hunter was on the receiving end of the Premier’s displeasure.Credit: Wayne Taylor

The policy, announced on February 18, was years in the making. The government said it was putting the policy on ice and going back to the drawing board just five days later.

It was lauded by public housing advocates who saw its potential to provide a long-term funding solution for Victoria’s nation-leading shortage of social housing. In an election year, it would also defend Labor against attacks from the Greens about the lack of affordable homes.

It also sat well with the government’s Robin Hood theme, featuring a string of policies designed to tax well-off firms to fund social programs for people doing it tough. Other examples include a windfall profits tax on developer rezoning and a payroll tax increase to fund mental health.

But the Premier’s explanation for putting the bill on ice masked a weekend of internal dissent from Labor MPs and unions over the proposal, according to more than ten MPs, party insiders and business figures, who spoke to The Age on the condition of anonymity to detail sensitive discussions.

Many party figures questioned whether the government miscalculated the potential damage of an election scare campaign from the Coalition and the Property Council on house prices, which would increase if developers stuck to their word and jacked up prices to compensate for the new tax.

Between last Friday afternoon and early this week, a flurry of tense conversations took place both within the Andrews government and the broader Labor machine. A group of government MPs raised serious concerns about what they believed was a rushed policy with grave political and economic costs.

Federal Housing Minister Michael Sukkar used the tax to pressure federal Labor, prompting stress among some Victorian federal Labor MPs facing an election within months. The Coalition’s attacks on Labor’s negative gearing policy at the last federal election are still fresh in their memory.

A key left-wing Labor union which represents council workers, the Australian Services Union, wrote to all Labor MPs and crossbenchers arguing council jobs and services could be cut due to one element of the housing reform package: scrapping the need for the government to pay council rates on publicly owned houses. The union pressure came on top of anger at a Friday morning government briefing for council mayors and chief executives, many of whom were already complaining that the government’s rate capping policy would send some councils bust.

“We want this to be re-looked at, so it doesn’t hurt jobs or the community,” ASU secretary Lisa Darmanin told The Age. “We will vigorously campaign on any policies that affect the jobs of our members.”

With an eye on this year’s election, Premier Daniel Andrews shelved a major housing reform. Credit: Joe Armao

As one MP said this week: “It was pretty clear soon after Friday that we were opening ourselves up to an election fight on housing affordability and also pissing off unions and councils.”

Another government source said: “Why would we do this to ourselves in an election year? It made no sense to allow this to fester and that was clear to everyone.”

The ferocity of industry reaction belied the fact that talks about a potential tax began in 2019, when the government approached the Housing Industry Association (HIA), the Urban Development Institute of Australia (UDIA) and the Property Council about the concept of developers chipping in to fund social housing.

However, these groups say conversations about developer contributions ended in 2019. In 2021, new talks involving began on the separate topic of speeding up and simplifying the planning process – a long-held ambition of developers.

In late 2021, the government took the unusual step of bringing the Property Council into the tent. The peak body was told the government wanted to establish a tax on the end value of properties. By bringing the major property industry body along for the ride, it minimised the prospect of a well-funded media campaign on the new levy like the one spearheaded by the Property Council over the government’s windfall gains tax last year.

The government’s argument was thus: slashing red tape would deliver “super profits” to developers, so it was only fair the property sector paid some of this into a social housing fund.

The Property Council did not oppose such a tax; the contention centred on its rate. In December, the industry group told the government it could cop a charge of between 1 and 1.5 per cent. The government originally came to the table with a proposal of 2.5 per cent, which would have netted the state government more than $1 billion each year – a large haul for the severely stretched state budget that would have equated to about a quarter of the land tax revenue collected each year.

It was these good-faith deliberations with the PCA that informed briefings delivered to Mr Andrews by senior ministers and staffers before he savaged the council’s boss, Ms Hunter, for reneging on an “agreement”.

When Treasurer Tim Pallas and Planning Minister Richard Wynne revealed the policy on Friday, the rate was 1.75 per cent. The Property Council was given a heads-up about the final decision on the rate but, with the larger amount, it’s questionable if an “agreement” ever existed. The PCA had always intended to publicly highlight the flow-on costs of the tax at any rate above its desired range.

The Property Council, whose members include Australia’s biggest developers, immediately went on the attack. To hit the government where it hurt, it emphasised that while wealthy developers may be the target of the tax, Labor and swinging voters in key parts of the electoral map would pay the price.

“The levy would see an extra tax bill of $9,362 on the median house price in Wyndham in Melbourne’s west, a $21,525 increase in Burwood in Melbourne’s east and $11,725 in Armstrong Creek in Geelong’s growing southern suburbs,” Ms Hunter said in a written statement on Friday.

“The new Social and Affordable Housing Contribution is a tax by another name. This is the 10th new property-based tax this Victorian government has introduced. At a time when other jurisdictions in Australia are discussing tax reform, Victoria remains the only state in Australia that is implementing tax increases.”

Government ministers were surprised by the strength of Ms Hunter’s response. Even though 1.75 per cent went beyond the Property Council’s red line, they didn’t expect the lobby group to take an immediate campaign footing, as the UDIA and HIA – who were blindsided by the tax – both did.

Some Labor figures also feared the government would lose a vote on the bill in the upper house. After defections of Adem Somyurek and ally Kaushaliya Vaghela, the government needs two more votes on top of the three it can usually rely on. A loss would have been Labor’s fourth embarrassing defeat in the upper house in a few months.

The Premier publicly questioned the fate of the bill on Wednesday, saying: “The three’s not enough.”

After the weekend of fallout over the proposal, the government decided the bill would be put on ice as it went back to the drawing board. The retiring Mr Wynne – devastated that a legacy reform in his most treasured policy area was in tatters – told Ms Hunter of the government’s anger on Tuesday. The government decided the Premier would not be speaking to the PCA; his comments on Wednesday morning said it all, using his favoured “that person” descriptor to refer to yet another figure in his bad books.

“We’ve now seen that despite the CEO of the Property Council [having] called for these exact measures when that person worked at a different property peak, despite the fact that an agreement had been reached and the outcome of that long dialogue, that deep engagement was they’d support such a profit-sharing model, they now oppose that profit-sharing model,” he said.

The PCA expressed disappointment to the government about the personal nature of Mr Andrews’ criticism, which has created an acrimonious backdrop to a meeting between industry groups and the ministers early next week. The government is keen to neutralise the political fallout and ensure the Property Council does not use its financial weight to back an election-year housing affordability campaign in concert with the Coaltion, while property groups will propose to either drop the tax rate or change the way the tax is collected.

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