Taxpayers across the nation will be paying for Dan’s debt
The Victorian Premier is effectively accessing a federal bailout ‘through the back door’ and we are all going to have to cough up.
Taxpayers across the nation will be slugged as much as $2.6bn in the next four years to cover Daniel Andrews’s tax on property owners and business, as the Premier encourages Victorians to use his Covid debt levy to offset commonwealth tax obligations.
Anthony Albanese on Wednesday defended his Victorian Labor counterpart, saying he had “every confidence” in Mr Andrews and the state’s economy, as the Premier and Treasurer Tim Pallas got to work selling a budget that seeks to pay back $31.5bn in Covid borrowings over the next decade, but does little to address a net debt trajectory on track to reach $171.4bn by 2025-26.
Mr Andrews lobbied the federal government ahead of its May budget for extra funding for Victoria, telling journalists earlier this month that he would not let the commonwealth “off the hook” after it failed to provide funding for his state’s 2026 Commonwealth Games.
One economist told The Australian the impact of the $8.7bn in land and payroll tax levies on the federal budget was effectively a federal bailout of Victoria by stealth.
Asked on Wednesday whether he expected blowback from Canberra, Mr Andrews said the federal government had its own tax system. “It’s structured as they see fit, and I’d encourage anybody who can lawfully, legally make claims against that federal tax system to do so,” he said.
“I’m sure accountants will provide advice to that end. It does depend on an individual’s circumstances, how you have things structured, but those costs are tax deductible.
“That’s the advice I have, and I’m sure people will make those claims and it’ll be up to the Australian Taxation Office to judge them.”
Tuesday’s budget estimated 860,000 Victorians would pay $4.7bn over four years in additional land tax.
At a 30 per cent marginal tax rate (once stage three tax cuts kick in from mid-2024), the hit to commonwealth revenue would be $1.4bn over the forward estimates.
The budget also forecasts it will raise $3.9bn from higher payroll tax on big businesses over the coming four years. Again, assuming a 30 per cent tax rate, affected companies would be able to lower their tax obligations by $1.2bn over that period.
After Mr Andrews’s recent entreaty for commonwealth money was rebuffed, AMP Capital chief economist Shane Oliver said the Premier had effectively achieved that support “through the back door”.
Dr Oliver said more than half a billion dollars in lower revenues a year was not large in the context of the federal budget and the $615bn in total estimated tax receipts in 2023–24, but it was meaningful in the context of the government’s battle to reduce the national debt and deficits.
“Leading up to the budget, federal cabinet would have spent hours agonising over a $2.6bn policy measure,” he said.
Dr Oliver said state or territory governments that found themselves in a difficult fiscal position usually increased the cost of government services, such as transport fees or the price of renewing registration – expenses that are not typically tax deductible for households.
“All the tax increases were such that you could claim back some of the cost from the federal government,” he said.
“The incidence of the higher taxes are shared with the federal government. Roughly speaking, one-third will be pushed back to Canberra once individuals and companies do their tax.”
Dr Oliver said higher property taxes risked exacerbating the housing shortfall. “A big chunk of property investors are earning less than $100,000 a year, and if you are relying on people to continue to invest to ease pressure on rent, having the highest rate of land tax in Australia doesn’t help,” he said. “To the extent that it diminishes the number of property investors, it will worsen housing supply in Victoria.”
Asked on morning television whether the federal government would intervene to help Victoria “get its budget back in order”, the Prime Minister said the state’s economy was growing.
“The Victorian economy is bouncing back after the pandemic like the Australian economy has done,” Mr Albanese told the Seven Network.
“We’ll always co-operate with all of the state and territory governments right around the country, but I have every confidence in Premier Andrews and the Victorian government. They have done an enormous amount to invest in infrastructure, the Victorian economy is growing again, and that’s a good thing.”
A spokesman for Jim Chalmers said state and territory governments were responsible for their own revenue decisions. “Any impact on the commonwealth – whether positive or negative – will be considered as part of updates to our budget forecasts in the usual way,” the spokesman said.
The Andrews government estimates the land tax hike will cost affected property owners an average of $1300 a year, or $3.56 a day.
Asked whether the tax undermined the federal tax take, Victorian Treasurer Tim Pallas said: “That’s the way the system operates. I mean the fact that somebody is running a business and gets access to a commonwealth concession, that’s a choice they can make.”
“Of that $3.50 a day in the average adjustment through the Covid land tax component, half of that is claimable against the commonwealth if you’re running a business. That’s how the law operates, and it will continue to operate that way unless and until the commonwealth makes another decision,” he said.
Independent economist Saul Eslake said he would be “astonished” if Victoria’s Covid debt repayment plan had been crafted with the potential for a backdoor commonwealth subsidy in mind.
He said a state reducing payroll taxes for small businesses would work in the opposite direction, and provide some boost to the federal tax take.
Opposition Leader John Pesutto said Victorians who owned a modest outer suburban or regional investment property would face a tax bill of more than $10,000 over the next decade.
“These are not targeted measures. These are not temporary measures. They affect everybody including those on low and middle incomes, and it will affect them for a decade or more. That’s just not fair to Victorians,” he said.
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