Windfall gains tax to become law: three crossbenchers back Labor

Victorian landholders will have to pay the Government half the windfall gain they make from rezoning.

The new windfall gains tax will remain as a liability on properties that are rezoned until they are sold or subdivided for up to 30 years.

Victoria’s Upper House has passed Andrews Government legislation introducing a 50 per cent tax on the windfall gains a landholder makes from a rezoning decision.

Crossbenchers Andy Meddick, Fiona Patten and Greens MP Samantha Ratnam joined Labor MPs to deliver the 21 votes needed to pass the Windfall Gains Tax Bill late yesterday.

The vote put an end to a last-ditch bid by the Victorian Opposition to introduce amendments to reduce the tax rate and force the Government to direct the regional revenue it generated back into the local government area from which it was collected.

Treasurer Tim Pallas has previoulsy told Parliament the windfall gains tax will be calculated on the “taxable value uplift” in land from rezoning, being the difference in the capital improved value of the land before and after the rezoning takes effect.

The WGT will come into effect on July 1, 2023 will not apply where land is simply shifed from one rural zone to another, meaning a property could be reclassified from farming to rural activity, rural conservation or green-wedge zone without triggering the tax.

However rezoning from farming to rural residential, residential, commercial or other zones will incur the new tax, which has been set at 62.5 per cent tax on the uplift above $100,000 in a property’s value resulting from rezoning, dropping to 50 per cent on the gain above $500,000.

It will be up to the Valuer-General Victoria to determine values before and after rezoning.

Landholders will be given the option of paying the WGT when the property is rezoned or deferring payment, until the property is sold or subdivided for up to 30 years.

But anyone who defers payment will incur interest charged at the 10-year Treasury Corporation of Victoria rate – currently 1.84 per cent.

The Victorian division of the Urban Development Institute of Australia’s cheif executive Matthew Kandelaars said: “it’s incredibly disappointing that this legislation has been passed”.

“(It) will see the proportion of the cost of a new home attributable to government taxes, fees and charges rise to 42 per cent - that’s nearly half of a Victorians’ mortgage payment each month that will now go to paying off the Government’s tax addiction,” he said.

“This tax will cost Victoria over $7 billion in lost economic output and over 20,000 direct jobs, while drastically pushing up the price of new homes.

“It will hurt Victoria’s economic recovery at a time when we can least afford it and hurt thousands of Victorian families who will be locked out of home ownership.”

As it stands the UDIA estimates the windfall tax will add an average $250,000 to the cost of each hectare released to new home buyers in regional Victoria compared to just $108,000/ha under the Growth Areas Infrastructure Contribution tax, which applies to new land brought into Melbourne’s urban growth boundary.

“It will cost regional Victoria at least 2700 new homes, 9500 direct jobs and over $2.7 billion in lost economic output,” Mr Kandelaars said.

“This isn’t a question of whether regional Victoria remains affordable for the Melbourne tree-changer. It’s the nurses, teachers and tradies who have grown up in regional towns right across the state and dream of staying there who will be priced out of their own market.”

During yesterday’s debate on the bill Opposition Upper House Leader David Davis called on the Parliament to consider “excluding regional and rural areas” from the tax, arguing “investor and development confidence in rural Victoria is continually challenged by the relatively small scale and high costs of developments that are experienced outside metropolitan Melbourne”.

In responding to arguments that the tax would have a disproportinate impact on regional, Victorian Minister for Small Business Jaala Pulford said the Department of Treasury and Finance had looked at recent rezonings and estimated that if the WGT had been in place in the last three years “70 per cent of revenue would have come from rezonings in Melbourne and 30 per cent from regional Victoria”.

Ms Pulford said the tax was estimated to generate $40m a year.