Yesterday, Victorian Treasurer Tim Pallas delivered the Victorian budget for 2021-22. This budget invests $26b worth of new spending, and funding for key sectors health, education and infrastructure with the key aim of ‘creating jobs and caring for Victorians’.

The Victorian economy is faring better than expected, with the deficit revised from $23.3b down to $17.4b. The forecast deficit for 2022-23 has also been revised down to $11.6b, and the State’s cash balance forecast is anticipated to reach a $1.1b surplus by 2022-23.

As part of this budget, Mr Pallas has flagged $3.6b in public sector wage caps and bureaucratic cost cuts over the next four years. Additional to this, Mr Pallas has introduced new taxes and fines worth $2.7b.

Interestingly, the State will invest in the local capability to manufacture mRNA vaccines and has committed $170m to transform the General Motors Holden site into a global innovation hub, expected to become a world-renowned centre for innovation by 2051, supporting up to 30 000 high-value science, technology, engineering and mathematics jobs.

Key highlights

  • $24.2b in 2021 as part of the ‘Big Build’ Government infrastructure investment, including $264.1m for housing.
  • $3.8b in funding for mental health.
  • $1b for child protection and vulnerable families, including expanding the sector’s workforce and increasing out-of-home-care placements.
  • $288m to support the state as Australia’s ‘creative capital’.
  • $179m to deliver the first stage of the transformation of the former General Motors Holden site into a global innovation hub.
  • $107m to encourage economic activity in Melbourne’s CBD.
  • $10m ‘distillery door’ grant scheme to grow Victoria’s distillery industry.


  • $3.5b in education funding, including:
    • $209m to support TAFE and the training sector.
    • $167m to continue the roll-out of three-year-old kinder, which commenced in the 2020-21 budget.
    • $39m to fund programs for Aboriginal students from early childhood to senior secondary.
    • $20m to expand online teaching and digital learning.
    • $1.6b to deliver new schools and upgrades to existing schools.
    • $185m for the teaching workforce, including $148m to establish the Victorian Academy of Teaching and Leadership.


  • $7.1b for the healthcare system, including:
    • a further $1.3b for the COVID-19 public health response.
    • $1.2 billion to build and upgrade health infrastructure.
    • an extra $29m for public aged care services.
    • $50m for the establishment of mRNA vaccine manufacturing capability.


  • Road and rail Infrastructure investment, including:
    • a $2.3b investment to develop and expand the rail network.
    • $3.2b to ensure reliability of public transport.
    • Additional $242m for 'turn up and go' services.
    • $21m for the walking and cycling network.
    • $265m for the road network.
    • $100m to support the Zero Emissions Vehicle Roadmap.
    • $386m for a Road Safety Strategy.

Raising taxes and inventing new ones

The Budget’s centrepiece is clearly about raising taxes and inventing new ones. From the moment snippets of the budget were released last weekend, the revenue measures under the Budget have come under widespread criticism, including the property industry, business leaders and the Prime Minister. While the rhetoric has much in line with themes of ‘Robin Hood’, these taxes have the potential to reach more of the Victorian population than the ‘super wealthy’, either directly through payment of higher taxes, or indirectly through developers having to pass on these cost hikes and the potential loss of future investment for the State.

Windfall Gains Tax

  • A new ‘windfall gains tax’ will apply from 1 July 2022 to developers who benefit from planning decisions to rezone land. The total value uplift from a rezoning decision will be taxed at 50% for windfalls above $500,000, with the tax phasing in from $100,000. Details of how the tax will work in practice and how it applies to gains between $100,000 and $500,000 are yet to be published, as we understand that there will be a degree of industry consultation. From what we understand so far, the tax will be payable upon rezonings between zone types across Victoria (but not rezoning within a class of zone). However, the new tax will not apply to rezonings to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution (“GAIC”) areas (as they are already subject to the GAIC), and rezonings to Public Land Zones.
  • At this stage, the new tax raises more questions than answers and its potential spread and application is concerning:
    • Is it a paper tax on unrealised gains? The measure seems to apply at the moment of rezoning, which is a relatively early stage of the development process. How will developers practically fund the tax at a time when it typically has no cash flow or investment commitment?
    • Is this just another name for income tax in the form of another type of capital gains tax? If so, will taxpayers be able have the benefit of a “cost base” or equivalent such that the tax is only payable on the profit component? The measure suggests that the tax applies to the gross uplift in value, which would seem inequitable if it ignores the costs and expenses incurred by the developer (which are typically not insubstantial) in taking steps to convince Local Government or other government authorities to rezone.
    • Can the tax apply to someone who is an innocent bystander (eg a neighbouring developer succeeds in rezoning a whole area which includes landowners who have not sought rezoning), or a decision made unilaterally by Local Government or other government authority (eg in an effort to create “urban renewal”).
    • How are valuations to be undertaken? The process of rezoning can be long and drawn-out. Values could increase throughout the rezoning process, and not just at the moment of rezoning.
    • How do valuations remove other factors such as general property growth? In times of property boom, values of property can change literally overnight, and a floor of a $100,000 could easily be attributable to general property growth in the area.
    • We are hopeful that these and many more details are released in a consultative form, to give business, industry and tax professionals the opportunity to provide comments on how it might work in practice, along with projections on unintended consequences, such as potential flight of capital from the State.
    • Sovereign risk. Will there be widespread grandfathering of land acquired before commencement? If not, landowners who bought land in Victoria before the new tax was announced would not have been able to take account of the new tax as part of their decision to invest.  If existing landowners are caught, future investors may consider Victoria too risky, lest another new tax is brought in after they invest their capital in Victoria.

Increase in Transfer Duty and Landholder Duty rates

For contracts or arrangements entered into from 1 July 2021, a new ‘premium’ duty rate for high-value property transactions will be introduced. For property transactions with a dutiable value above $2m, duty will increase from a flat 5.5% to $110,000 plus 6.5% of the dutiable value in excess of $2m.

The only other State which charges a ‘premium’ rate is New South Wales. However, the New South Wales rate only applies to direct transfers of residential land and there are concessions for large parcels of land and mixed use land. The Victorian version applies to all land, regardless of size and use, and also applies to landholder duty.

The below table illustrates this change in practice, comparing the duty payable on purchase of a $2.5m residential property in each state/territory.


Duty payable on purchase of a $2.5m house

Relevant Threshold

Relevant Rate of Duty



More than $2,000,000

$110,000 plus 6.5% on amounts over $2,000,000



More than $1,455,000

4.54% flat



More than $1,033,000

$41,820 plus 5.5% on

amounts over $1,033,0001



Between $525,001 and $3,000,000

4.95% flat



More than $1,000,000

$38,025 plus 5.75% on

amounts over $1,000,000



More than $500,000

$21,330 plus 5.5% on

amounts over $500,000



More than $725,000

$27,810 plus 4.5% on

amounts over $725,000



More than $500,000

$19,665 plus 5.15% on

amounts over $500,000

1 The NSW premium rate of 7% only applies to transfers of residential land with a dutiable value exceeding $3,101,000.

Land Tax

  • From 1 January 2022, land tax rates for the two highest thresholds will be increased, with taxable landholdings between $1.8m and $3m. This equates to an increase of 0.25 percentage points and an increase of 0.3 percentage points for those in excess of $3m. This change will apply to both the general and trust surcharge rates.
  • There will also be an increase in the tax-free threshold for general land tax from $250,000 to $300,000 from 1 January 2022. There is no change to the trust rate scale.
  • From 1 January 2022, the vacant residential land tax exemption for new developments will be extended to apply for up to two years. This gives developers additional time to attract purchasers before the tax may be applied.
  • For the purpose of assessing land tax, no account will be taken of any interest the State has in the land under a shared equity arrangement.
  • Unit trust schemes will be excluded from the definition of discretionary trust, making the definition of discretionary trust and unit trust scheme mutually exclusive. This is a welcome measure, in an otherwise confusing set of definitions.
  • A partner in a partnership will be taken to have a beneficial interest in all partnership property. Among other things, the provisions confirm that a nominee holding partnership land is able to nominate each partner as a nominated beneficiary under the trust surcharge regime, with the partnership considered to be a fixed trust.
  • There will be a minor change to pre-2006 land owned by the trustee of a discretionary trust that is used and occupied by a nominated beneficiary as a principal place of residence.

Victoria now has generally the highest State property taxes in Australia

Upon digesting these tax increases, it occurred to us that Victoria could now well be the highest taxing State or Territory in Australia for developers, and we were not far wrong. .

Payroll Tax

The Budget introduces a Mental Health and Wellbeing Levy on wages paid in Victoria from 1 January 2022. The levy is aimed at providing funding to secure long term mental health reform in Victoria and will be levied at;

  • 0.5% for businesses with national payrolls over $10m a year; and
  • a further 0.5% surcharge for businesses with national payrolls over $100m.

Unlike the previous COVID concessional measures introduced in March 2020, interstate wages will be included when considering whether the thresholds are breached. Once breached, the levy will be payable on Victorian taxable wages above the relevant threshold amounts. As such, due to the interaction with interstate wages and other group member wages, there will be a proportioning of the thresholds based on Australian wide wages to determine the applicable Victorian wages subject to the new levy.

In addition, there will be an acceleration of the following previously announced changes:

  • An increase of the payroll tax-free threshold to $700,000 from 1 July 2021 (previously 1 July 2022).
  • A reduction of the regional employer payroll tax rate from 2.02% to 1.2125% from 1 July 2021 (previously 1 July 2022).

Other duty and land tax changes

  • Many clubs and societies in Victoria are currently entitled to a land tax exemption on their landholdings. However, from 1 January 2022, private gender-exclusive clubs will no longer be eligible for the land tax exemption. We are yet to see the legislative definition of “gender-exclusive”. However, it could apply to clubs who provide less-than-full membership for the opposite gender (eg associate membership).
  • For residential contracts entered into from 1 July 2021 to 30 June 2023, the threshold for the off-the-plan concession for land transfer duty will rise to $1m for all home buyers. As required under existing eligibility criteria, the property must be the principal place of residence for at least one of the purchasers.
  • An exemption or concession for transfer duty will be provided on the purchase of new residential property in the Melbourne local government area with a dutiable value of up to $1m.
    • For transfers of new residential property that has been unsold for less than 12 months since completion, a 50% concession will apply for contracts entered into between 1 July 2021 and 30 June 2022.
    • For transfers of new residential property that have been unsold for 12 months or more since completion, a full exemption will apply for contracts entered into between 21 May 2021 and 30 June 2022.

It is interesting that this concession is deemed necessary in the context of Victoria being the first State to introduce foreign surcharges, which had the effect of deterring foreign purchasers from buying land in Victoria, including in the Melbourne CBD. If such potential buyers were to be brought back onto an even platform with local buyers, the concession might not have been necessary.  Incidentally, the concession or exemption does not apply to foreign surcharges.

  • Transfer duty will not apply in certain circumstances involving a shared equity arrangement between a person or owner and the State. A person who enters into a shared equity arrangement with the State will be assessed for duty on the purchase of the home as if the person was the sole purchaser/owner of the home. However, no duty will be chargeable in respect of the beneficial interest held by the State or a change in beneficial ownership resulting from an owner of land purchased under a shared equity arrangement paying money to the State.

Other taxes and penalties

  • From 1 July 2021, wagering and betting tax will increase from 8% to 10% of net wagering revenue. This will align Victoria with the rate that currently applies in New South Wales.
  • From 15 April 2022, the point of consumption framework will be extended to keno tax to ensure all keno operators in Victoria pay an amount of tax in Victoria.
  • After an indexation freeze in 2020-21, the penalty unit value will increase by 10 per cent beginning 1 July 2021. Amounts affected by this change include traffic infringement fines and court-imposed penalties.