What does the 2021-22 Victorian State Budget mean for you and your business?

The Victorian Treasurer, Tim Pallas MLA, handed down the Victorian State Budget on Thursday 20 May 2021. After a delayed 2020-21 budget on account of COVID-19, this budget was back in its traditional May timeslot. 

Taxation revenue is forecast to increase by 13.2% in 2021-22, partly due to economic conditions recovering from the COVID-19 pandemic slump and the introduction of new taxes. This has led to the following economic projections given by Treasurer Pallas:

  • Gross State Product forecast to grow by 6.5% in 2021/22 (compared with a current forecast of -2% for 2020/21);
  • Victoria’s deficit is forecast to be $11.6b in 2021/22, reducing to $2.1b in 2023/24;
  • Net debt will be $102.1b in 2021/22, increasing to $156.3b in 2024/25 at the end of the forward estimates period.

Key points

  • In contrast to the 2020-21 Budget, the focus on this budget is higher taxes
  • Notwithstanding, some revenue measures are aimed at making things easier for small business
  • From a spending perspective, the key focus of this Budget is Mental Health

Revenue measures

Revenue measures announced by Treasurer Pallas are expected to contribute a net $468.5m to Victoria’s coffers in 2021/22. The key measures are outlined below.

Businesses

Mental Health and Wellbeing Levy

To fund the Government’s key commitments on Mental Health arising from the recent Royal Commission, a Mental Health and Wellbeing Levy will be introduced. From 1 July 2022, businesses with a national payroll in excess of $10m will pay an additional 0.5% on Victorian wages above the national threshold of $10m. For employers with a national payroll in excess of $100m, an additional 0.5% surcharge will apply.

Property 

Increase in Land Tax Rates for High-Value Land Holdings

Victorian Land Tax revenue is expected to increase by 15% in 2021-22 and will grow by 9% per annum over the forward estimates.

From 1 January 2022, land tax rates for larger property holdings will increase by:

  • 0.25 percentage points for taxable landholdings exceeding $1.8m; and
  • 0.3 percentage points for taxable landholdings exceeding $3m.

A technical amendment to the Land Tax Act 2005 will also be made to overcome the decision in Commissioner of State Revenue v Danvest Pty Ltd [2017] VSCA 382 will be inserted so that partners will be deemed to have a beneficial interest in partnership property in the same proportion to their partnership interest.

Premium Duty Rate on Land Transfers of High-Value Properties

From 1 July 2021, contracts entered for the purchase of land with a dutiable value in excess of $2m will attract transfer duty at the rate of $110,000 plus 6.5% of the dutiable value over $2m. This contrasts to the current rates of $110,000 plus 5% of the dutiable value over $2m.

The 6.5% duty rate will also apply to landholder duty calculations for the transfer of an eligible interest in a company or trust holding Victorian land from 1 July 2021.

Windfall Gains for High-Value Landholdings 

A specific tax will apply to windfall gains for high-value landholdings which benefit from a rezoning of the land. This measure will apply from 1 July 2022 at the rate of 50% on increases in value of $500,000, with the tax phasing in from gains of $100,000. This will apply across Victoria except where the Urban Growth Zone within an existing Growth and Infrastructure Contribution area is concerned. Public Land Zones will also be exempt. Importantly, this will only apply to gains made on rezoning between zone types, rather than between sub-categories of the same zone.

Gambling

Increases in Wagering and Betting Taxes - $47.6m

Wagering and Betting Taxes will increase from 8% to 10% from 1 July 2021, bringing Victoria into line with New South Wales. This in turn will fund an increase in the net wagering revenue that is returned to the Victorian Racing Industry from 1.5% to 3.5%, with the balance distributed to the Hospitals and Charities Fund and the ANZAC Day Poppy Appeal.

Tax savings

Notwithstanding the increases in tax and revenue, the Budget provides some relief for Victorian taxpayers.

BUSINESS

Bringing Forward a Reduction in the Regional Payroll Tax Rate

To support jobs in regional Victoria, the Government has announced that it will bring forward the reduction in the regional payroll tax rate from 2.02% (current rate) to 1.2125% with effect from 1 July 2021. This is expected to benefit around 4,000 regional businesses. Note, this rate was legislated to reduce to 1.62% from 1 July 2021.

Bringing Forward Increases in the Payroll Tax-Free Threshold

The Government has announced that the increase in the payroll tax-free threshold to $700,000 (from $650,000) will be brought forward to 1 July 2021. This is expected to provide full payroll tax relief to approximately 500 businesses, while another 42,000 will pay less in payroll tax.

PROPERTY

New Residential Property Transfer Duty Concessions – City of Melbourne

In an effort to boost new residential construction within the City of Melbourne Local Government Area, the Victorian Government has announced a transfer duty concession on the purchase of new residential properties up to a dutiable value of $1m.

A 100% transfer duty concession will apply for contracts entered between 21 May 2021 and 30 June 2022 when an occupancy permit for the home has been issued at least 12 months prior to the date of the purchase contract. A 50% duty concession will apply to the purchase of new residential property that does not meet the 100% concession.

Importantly these duty concessions do not extend to foreign purchasers additional duty.

Off-the-plan Duty Concessions

An off-the-plan duty concession will apply to the transfer of Principal Place of Residence properties costing up to $1m for contracts entered into between 1 July 2001 and 30 June 2023. The concession discounts the building construction cost in the calculation of duty.

Increase in Tax-Free Threshold for Land Tax

From 1 January 2022, the tax-free threshold for general land tax rates will increase from $250,000 to $300,000. This is expected to benefit around 61,000 landholders. There will be no change to the tax-free threshold for land held by trusts. 

New Development Vacant Residential Land Tax Exemption

The Government will extend the new development vacant residential land tax exemption from 1 January 2022. This will support the construction sector by providing a vacant residential land tax exemption for two full tax years following the completion of new residential dwellings.

Continue reading about announcements made in the Property & Construction sector

Key spending measures

Mental Health

Mental Health is the Government’s centrepiece in this budget, with a pledge of $3.8 billion to address the recommendations arising from the Royal Commission. This will be funded by a special payroll tax levy imposed on large employers (refer to above). 

This spending measure includes:

  • $954m to deliver community-based care
  • $370m to improve access to mental health beds and acute care
  • $264m for new local services for adults and older Victorians
  • $196m for dedicated services for infants, children and families
  • $173m for suicide prevention
  • $116m to support the mental health and wellbeing of indigenous peoples living in Victoria.
  • This is expected to have a flow-on effect, by creating around 3,000 new jobs.

Health

The Government has also announced $3.7b in funding for the state’s health system, with key spending measures including:

  • $556m to build and expand 10 community hospitals in metropolitan and regional Victoria; and
  • $100m (including $40m of Commonwealth funding) to build paediatric emergency department zones in specified locations.

Infrastructure

There is no significant spending on new infrastructure projects this year, with most of the major road and rail projects committed as part of the 2020/21 budget. 

Despite this, the Government has announced $3.2b in public transport funding, including:

  • $986m for 25 new trains, which will be largely built in Victoria (Ballarat);
  • $613m to support the reliability of the V/Line network.

Melbourne CBD and Surrounds Reinvigoration

Key spending measures to assist with reinvigorating the Melbourne CBD and surrounding areas post-COVID-19 include:

  • $179m to commence development of a Centre for Innovation in Advanced Manufacturing, Engineering and Design at the former General Motors site at Fishermans Bend; and
  • $107m to support business recovery in Melbourne’s CBD, including a CBD Dining Experiences Scheme to encourage Victorians to support the CBD’s arts and hospitality sectors.

As life begins to return to normal for Victorians, the pressure is now on the Government to demonstrate its ability to manage the economic fallout of COVID-19. This is especially important, as the next State Election only 18 months away. Please contact your local RSM adviser to discuss the implications of this budget for you.

For more information on the Victorian State Budget and the property and construction announcements, click here.