The Victorian government has delivered its budget for the 2023–24 financial year, unveiling a raft of new reforms, including a move to abolish stamp duty on commercial and industrial property transactions.
Stamp duty would be replaced with an annual land tax from 1 July 2024, which according to Premier Daniel Andrews, would support business investment in infrastructure and labour.
During the transitionary period, first-time purchasers of a commercial or industrial property would be provided with the option to either pay the upfront costs immediately after settlement or make fixed annual instalments over a 10-year period.
Other purchasers would be charged a flat 1 per cent rate, as a proportion of the property’s “unimproved land value”.
The move is tipped to deliver a $50 billion boost to the Victorian economy, which continues to grapple with the lingering impact of the COVID-19 pandemic.
“Business and industry have told us they want this reform and we’ve listened,” Victorian Treasurer Tim Pallas said.
“These landmark changes will enable businesses to be more dynamic and agile, and to grow and employ more workers.
“We’re removing barriers to larger investments, accelerating business growth and helping our economy grow even stronger.”
The reform has also been welcomed by the Victorian Chamber of Commerce and Industry, with chief executive officer Paul Guerra claiming it would “accelerate building upgrades, stimulate investment in commercial property and free up more capital”.
He added: “The Victorian Chamber has been working with the state government on this landmark and generational productivity reform which businesses across Victoria will welcome.”
But according to AMP chief economist Shane Oliver, scrapping stamp duty would not be enough to revive the wounded commercial real estate market.
“I think any impact will be marginal, on that front, because the primary driver of decisions to buy commercial property is whether it stacks up as a long-term investment,” he told InvestorDaily.
“There’s no doubt that removing stamp duty and switching to land tax can help facilitate transactions, but there’s no change in the net present value of the building because you’re just swapping one form of tax for another.”
He said long-term investment decisions, particularly from fund managers, are primarily based on long-term return expectations.
Mr Oliver also reflected on the government’s tax hike on property investors, aimed at reducing the government’s debt burden, which hit record levels at the height of the COVID-19 pandemic.
From 1 July, businesses with a national payroll above $10 million per year will be charged an additional payroll tax of 0.5 per cent.
This additional tax, dubbed as the COVID Debt Levy, would increase to 1 per cent for businesses with a turnover above $100 million.
“I think Victoria is now one of the highest taxing states, if not the highest taxing state,” Mr Oliver said.
“The combination of payroll tax and land tax could see some employers decide to relocate elsewhere.
“…The government has tried to shield ordinary Victorians from the tax hikes to reduce debt, but the risk is that they’re adversely affected as businesses relocate to other states and landlords pass the land tax increase on in the form of higher rents.”