On Tuesday 23 May 2023, Victorian Treasurer Tim Pallas handed down his ninth State Budget, focused predominantly on repairing skyrocketing government debt while funding election commitments.

The Andrew’s Government announced a $10.3b deficit this financial year, with 2023-24 forecasted to decrease to $4b and return to an operating surplus of $1b in 2025-26 and $1.2b in 2026-27.

However, Victoria’s net debt will rise from $135.4b in 2023-24 to $171.4b by 2027, while net operating cash flow is forecasted to experience a slight surplus by $0.8b in 2023-24, increasing to $6.5b in 2026-27. 

Key to Pallas’ debt repayment measure is the 10-year COVID Debt Repayment Plan, hitting business with payrolls above $10m a year with an $8.6b debt levy, and landowners and property investors will see higher land taxes, saving the Government $4.7b. Infrastructure projects will also be on hold in the short term to help pay off COVID-related debt.

Key highlights

  • $4.9b for Victoria’s healthcare system, including $201m for initiatives for healthcare workers and $162m for regional aged care. 
  • $2.1b to build and maintain schools. 
  • $1b to fund the reinstatement of Victoria’s State Electricity Commission. 
  • $900m for medical research.
  • $618m to build nine new local schools.
  • Additional $400m for the Power Saving Bonus
  • $320m to establish a Hospital Infrastructure Delivery Fund.
  • $186m to expand the eligibility criteria for subsidised TAFE training courses.
  • $170m for a Building Better TAFE Fund.
  • $21m to establish a Manufacturing and Industry Sovereignty Fund to help businesses access the Federal Government’s $15b National Reconstruction Fund.
  • $15m Industry R&D Infrastructure Fund.

Revenue and State Tax measures 

The State Budget has announced a number of significant changes to stamp duty, payroll tax, land tax and insurance duty.

Stamp Duty: transfer duty for commercial and industrial properties to be abolished 

The headlining revenue measure is the Government’s announcement to abolish stamp duty for commercial and industrial properties. 

From 1 July 2024, commercial and industrial properties will transition to a new annual property tax system (levied at 1 per cent of the unimproved value) as they are sold. The transition away from stamp duty for commercial and industrial properties will occur after the first sale, with the annual property tax applying 10 years after sale. The Government will consult with businesses and industry in the coming months, with legislation expected to be released by the end of the year.

More information on this announcement is available in our in-depth summary here.

Land Tax and Payroll Tax: property owners and large employers the biggest losers

Property owners and larger employers will be funding a significant part of the COVID Debt Recovery Plan. 

The Andrews Government will seek to impose a ‘temporary and targeted’ levy as part of its COVID Debt Repayment Plan. The levy will apply for a period of 10 years, until 30 June 2033, and has two components, land tax and payroll tax. 

Land tax

Three key measures – a reduction to the tax-free threshold, the introduction of a fixed charge and an increase to the rate for certain landowners are expected to result in a significant increase to land tax revenue. 

Commencing 1 January 2024, the tax-free threshold for general land tax rates will decrease from $300,000 to $50,000, which will see a significantly increased number of investment properties subject to land tax. In addition, for general taxpayers, a temporary fixed charge of $500 will be levied on taxpayers with landholdings between $50,000 and $100,000, and $975 on taxpayers with landholdings between $100,000 and $300,000. For general taxpayers with property landholdings above $300,000 (and trust taxpayers with property holdings above $250,000) land tax rates will temporarily increase by $975 plus 0.1 per cent of the value of their landholdings above $300,000. 

Payroll tax

Large employers with total annual Australian wages exceeding $10 million will be subject to a temporary COVID Debt Repayment Plan levy from 1 July 2023 of between 0.5 to 1 percent.

From 1 July 2023, an additional payroll tax levy on large businesses with national payrolls above $10 million a year will apply (with a rate of 0.5 per cent to apply for businesses with national payrolls above $10 million, and a rate of 1 per cent to apply for businesses with national payrolls above $100 million. This means that following the introduction of the temporary COVID Debt Repayment Plan levy, in conjunction with the previously introduced Mental Health Levy, this could mean some businesses paying a 6.85 per cent effective Payroll Tax rate with no threshold deduction.

In some positive news to employers, the Government has also announced an increase to the tax-free threshold for payroll tax from 1 July 2024, with a further increase to $1 million from 1 July 2025. However, a ‘phase out’ of the tax-free threshold will also come into effect resulting in the tax-free amount reducing between 3 million and 5 million, with no threshold for wages over 5 million.

Other Revenue measures

A range of other Revenue measures have been announced, including:

  • The progressive abolition of business insurance duty, with the rate of duty, currently 10 per cent, being reduced by 1 percentage point each year from 1 July 2024. General insurance (such as insurance for cars and property) does not appear to be impacted. 
  • A doubling of the absentee owner land tax surcharge (“foreign land tax surcharge”) from 2 per cent to 4 per cent from 1 January 2024 which currently has the ability to apply to all land in Victoria (including residential, industrial and commercial).
  • Payroll tax exemptions for certain ‘high-fee non-government schools’ will be removed from 1 July 2024.

More detail regarding the above tax announcements are available in our in-depth summary here

Victoria to abolish stamp duty on commercial and industrial properties
Victoria to abolish stamp duty on commercial and industrial properties
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Grant Thornton will be following the announcements released as part of the State Budget closely over the coming weeks and months.  Please contact a member of the Grant Thornton team if you have any queries or would like to discuss.