Is Victoria Australia’s highest taxed state? It’s complicated

The state opposition has been getting plenty of mileage out of the claim that Victoria is now Australia’s highest taxed state after the imposition of new and steeper taxes in last month’s state budget – including higher land taxes, higher taxes on holiday houses and higher payroll taxes for larger businesses.

Overall, the state’s tax haul is expected to leap 28 per cent over the next four years, from about $31.5 billion now to $40.4 billion in 2026-27, as part of the Andrews government’s COVID-19 debt repayment plan, according to the budget.

The opposition contends that rampant spending and poor financial management have forced the government to inflict extra financial pain on households and businesses as it struggles to stop the state’s budget position from continuing to slide.

Shadow treasurer Brad Rowswell used his budget reply speech to accuse the government of mismanaging money, saying “every Victorian will continue to pay more and get less”. Meanwhile, Opposition Leader John Pesutto has said Labor’s only plan to fix Victoria’s debt levels was to “tax the bejesus out of our state”.

An analysis by Victoria’s Parliamentary Budget Office – in response to a request by Pesutto – shows that in the next financial year, the state government is expected to collect an average $5074 in state taxes per person, the highest in the nation.

According to the budget office, that compares with $4707 in NSW, $3647 in Queensland, $2970 in South Australia and $2900 in Tasmania.

The analysis also suggests Victoria is the most heavily taxed state when the figures are expressed as a percentage of the state economy. In 2023-24, the state tax haul is expected to be equivalent to 5.8 per cent of Victoria’s gross state product, compared with 5 per cent in NSW, 4.4 per cent in Queensland, 3.1 per cent in Western Australia, 3.9 per cent in South Australia and 3.8 per cent in Tasmania.

On the face of it, Victoria appears to be Australia’s highest taxed state. But three important qualifications are needed.

First, the budget office figures relate to the coming financial year and do not yet reflect reality, but are rather the result of a hotchpotch of predictions taken from various state budgets and the Australian Bureau of Statistics.

In the current financial year, which is now almost over, Victoria’s tax take is expected to be about $4699 per person. This is lower than in NSW, where the government is expected to rake in the equivalent of $4811 per person. Over the eight years to 2022-23, Victoria collected an annual average of $3832 in state taxes per person, compared with $4169 in NSW.

It is, however, correct to say that over the next four years, Victoria is on track to collect more taxes per person than any other state, based on the current forecasts and policy settings. That follows the government’s COVID-19 debt repayment plan announced in the state budget.

Second, state taxes aren’t the only types of revenue. Most importantly, Victoria does not significantly benefit from mining royalties, unlike resource-rich states such as Western Australia and Queensland.

Royalties – payments from companies to governments for the right to extract minerals or other resources – are not counted as taxes, but they still represent a massive source of revenue for some jurisdictions.

For example, last week, Queensland announced the biggest budget surplus ever delivered by a state, thanks largely to an extraordinary $18.3 billion royalty windfall in 2022-23 driven by soaring global coal prices.

According to analysis by this masthead using the latest data available, after including royalties in a state-by-state comparison, Victoria is below NSW and Queensland in taxes in 2023-24 (the year used by the Coalition and the budget office as a basis for comparison). When royalties are included, Victoria paid the equivalent of $5109 in tax per person, lower than NSW ($5242) and Queensland ($5332).

Third, bigger states such as Victoria and NSW get a far smaller share of the GST carve-up, leaving them to levy their own taxes to make up the difference to fund public services.

The Victorian government’s argument is that a fairer measure than tax per person is total revenue per person, suggesting this better reflects total state and federal government taxes used to pay for services and other spending.

As Treasurer Tim Pallas put it, focusing solely on taxation to compare states represents “cherry-picked nonsense”. In fact, depending on the year, Victoria gets the least (or close to the least) revenue per person.

This financial year, Victoria’s total revenue is expected to amount to $12,373 per person, compared with $12,834 in NSW, $16,292 in Queensland and $15,256 in Western Australia. Next financial year, Victoria’s total revenue per person is expected to slightly exceed revenue per person in NSW, although it will still be less than that of other jurisdictions.

The bottom line is that it is simplistic to focus only on tax revenue in a single year, excluding the massive royalties earned by some states, and transfers from the Commonwealth to smaller states. When other sources of revenue are included, Victoria is near the bottom of the pile.

Whether taxpayers are getting good value for their money from the state government, and whether the money is being spent efficiently and transparently in the right areas, are different questions altogether.

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