Daniel Andrews tax ‘a $7bn hit to the economy’

Property developers have proposed an alternative to the Andrews government’s new ‘windfall gains’ tax, warning it could cost the state economy $7bn and 20,000 jobs.

Victorian Treasurer Tim Pallas. Picture: Sarah Matray

The Andrews government’s planned rezoning tax will render many local housing projects unviable, costing at least 6700 new dwellings, 20,000 direct jobs and more than $7bn in lost state ­economic output, according to modelling commissioned by the peak body representing Victorian property developers.

The Urban Development Institute of Australia’s Victorian branch is proposing an alternative tax, based on realised windfall gains rather than hypothetical valuations, arguing its plan would address the “worst consequences” of the proposal without putting a hole in the state budget.

The “windfall gains tax”, announced in the most recent state budget, will impose a 50 per cent tax on any uplift in the value of land generated by a rezoning.

It is scheduled to start on July 1 next year, but draft legislation is yet to be made public, let alone pass parliament.

UDIA Victoria chief executive Matthew Kandelaars said the tax was a “blunt tool” with major ­implications for Victoria’s urban development industry.

“This proposed new property tax will cost thousands of Victorian jobs and result in billions in lost economic activity, right when our state needs to ignite its Covid recovery,” Mr Kandelaars said.

“The entire approach needs urgent review. The present proposal, which is still not backed by draft legislation, is full of holes and is already impacting industry confidence and threatening eco­nomic activity and the delivery of housing projects.

“Victoria’s urban development industry has the expertise and genuine desire to engage with the government to help it avoid the major economic impacts that its current model will bring.

“It is important to note too that we are not calling for no tax. We are trying to work with the government to fix it and have offered them a solution.”

Mr Kandelaars said the tax on unrealised upflift gain from the rezoning of land could not be quantified when a local developer or external financier was contemplating a project’s feasibility.

“Without certainty about the extent of any future liability, and with the tax pitched at such a high rate, many projects will be rendered unviable,” he said.

“We don’t like or want another new tax, because Victoria’s urban development industry already contributes billions annually to the Victorian economy,” Mr Kandelaars added. “However, we are developing alternative and smarter solutions that can avoid the worst outcomes.”

Under the proposed alternative model, developers would be taxed on a per-hectare basis, with contributions for regional Victoria capped at 50 per cent of metropolitan Melbourne, reflecting the differences in the markets.

Funds collected under the model would be hypothecated and invested back into the communities where they were raised.

The alternative model would also distinguish between developers and speculators, “recognising the significant contributions ­developers make to economic ­activity and housing supply across Victoria”, and would be based on the concept of “net ­uplift” rather than “gross uplift” in order to recognise the costs ­associated with rezoning land.

“It seems as though the government doesn’t believe that the rezoning tax will affect development decisions, although we’re yet to see the basis of those assumptions,” Mr Kandelaars said.

“At the same time, our members are the ones who put their hands in their pockets and sign cheques to incur the significant costs involved in proceeding with a project – and the direct and unambiguous feedback is the current model will kill investment.”

A spokesman for Victorian Treasurer Tim Pallas said it was “only fair that those making large profits from a stroke of a pen ­return a reasonable proportion to the community”.

“We will continue to work with stakeholders on the implementation of these measures, which ensure everyone pays their fair share,” the spokesman said.