Victorian budget: Taxes to make up 40pc of home costs

New and increased property taxes in Victoria will see state and local government fees and charges make up more than 40 per cent of the purchase price of a home, according to modelling.

The new taxes included in Thursday’s Victorian budget will see the proportion of the price of a new dwelling rise from 28 per cent to 42 per cent. Picture: iStock

New and increased property taxes in Victoria will see state and local government fees and charges make up more than 40 per cent of the purchase price of a home, according to modelling.

It comes as industry warns apartments and townhouses in medium-density developments will become less affordable as the land tax flows on to dwelling prices. The new taxes included in Thursday’s budget will see the proportion of the price of a new dwelling rise from 28 per cent to 42 per cent, according to modelling by the development industry association the Urban Institute of Australia.

This would mean $253,500 out of the cost of a $600,000 apartment in Melbourne’s inner and middle-ring suburbs would go to state and local governments in the form of taxes, fees and charges. UDIA Victorian chief executive Matthew Kandelaars rubbished the government’s claims only high-end property prices would be impacted, saying the prices would be passed onto consumers or projects would become unviable. “Pitching the tax hikes as only affecting premium property buyers is not true,” he said. “Many Victorians already pay a third of their home purchase price to the government, with the threat that this will rise.”

The Victorian Labor government at the weekend announced plans to lift stamp duty on properties valued at $2m and above from 5.5 to 6.6 per cent — adding $20,000 to the price of properties at the bottom end of that range — and impose a windfall gains tax on ­developers of up to 50 per cent.

As well, the state Treasury plans to increase the land tax on commercial and investment properties valued between $1.8m and $3m from 1.3 to 1.55 per cent, and from 2.25 to 2.55 per cent for real estate valued above $3m.

Treasurer Tim Pallas on Wednesday defended the increases, saying current discounts on stamp duty had not seen a reduction in property prices.

“The truth is we are currently providing a 25 per cent stamp duty cut on property purchases of existing built housing, and a 50 per cent cut for new housing,” he said. “But we have not seen, in the last quarter, a reduction in prices for a reduction in tax … so certainly the converse case doesn’t seem to give weight to the argument.”

The increase, raising $2.4bn over the next four years, is part of Thursday’s state budget, but will partly be based on decisions to rezone land made from July 2022.

Kavitha Vipulananda, founder of development company Alleura, said increases would harm the viability of medium-density projects, which usually required sites over 1500sq m and would be caught by the new taxes.

“It is important to note that banks provide borrowing based on certain profit margins (and) loan-to-cost ratios,” she said.

“Therefore any increase in cost will need to be passed onto purchasers in order to meet ­financing requirements.”

Property Council of Australia Victorian chief executive Danni Hunter said reducing the viability of new developments would lead to reduced supply and increased prices.