Victorian State Budget

Transcription

1 Victorian State Budget

2 Contents Commentary 1 The Government s reliance on State taxes revenue 2 Metropolitan planning levy 4 Payroll tax 5 Land tax and stamp duty 6 First home owner stamp duty concession 7 Increases to motor vehicle duty and registration fees 8

3 Commentary 1 Victorian Treasurer Michael O Brien handed down his second Budget this afternoon and continued the theme from last year by focusing on investment in infrastructure. The Government has committed up to $27 billion to a variety of major infrastructure projects, including $24 billion for transport projects such as the western section of the East West Link and the Metropolitan Rail Link, which will include an Airport Rail Link. This investment will be funded by strong forecast operating surpluses over the next four years. The operating surplus for has been revised up to $1.3 billion and this is forecast to grow to $3.3 billion in The Government is projecting economic growth in Victoria of 2.5 percent over the next 12 months, rising to 2.75 percent in The unemployment rate is expected to remain stable at 6.25 percent in before gradually declining to 5.5 percent over the forecast period. State taxation revenue is expected to increase by 7.2 percent in , driven by significant growth in land tax and land transfer duty. Residential property developers and investors are likely to face material increases in their land tax bills next year following the land revaluations performed by local councils every two years. Land transfer duty is forecast to increase by more than $1 billion over the next four years and this includes the increasing impact of landholder duty on significant changes of ownership in companies and unit trusts that own land in Victoria. Victorian employers will be given some minor tax relief, with a 0.05 percent reduction in the rate of payroll tax from 1 July However, businesses in the property development industry will be hit with a new Metropolitan Planning Levy which will be imposed on planning permit application fees for projects worth more than $1 million. Pitcher Partners welcomes the Government s continued commitment to investment in transport infrastructure. Based on the responses to the recent Pitcher Partners Pre Budget Survey, our clients are overwhelmingly in favour of better road and rail transport infrastructure so that they can transport their employees and their goods more efficiently around the State. The major infrastructure projects will create new jobs in certain sectors and will make Victoria an easier place in which to do business. We are, however, disappointed that the Government has not used its strong financial position to provide greater relief to business from their State taxes burden. While the small reduction in the rate of payroll tax is welcome, it does not go nearly far enough. The cost of State taxes borne by our clients continues to increase on a yearly basis and there is still no relief in sight. Given the Government s strong forecast surplus position over the next four years, we believe this Budget is a missed opportunity to stimulate business activity in Victoria by providing a real reduction in the cost of State taxes. We also believe that the new Metropolitan Planning Levy will be an unwelcome new tax for our clients in the property development sector. They already face a multitude of charges imposed by both the State and local authorities which significantly add to the cost of their development projects. We will continue to call on the Government to provide business with real tax relief in overall terms, including a reduction in the number of taxes and charges they are subject to in Victoria.

4 2 The Government s reliance on State taxes revenue With the exception of the small reduction in the payroll tax rate, the Government has not announced any major changes to Victoria s tax revenue base. Nevertheless, total revenue from State taxes is expected to increase in by 7.2 percent, driven largely by land tax and land transfer duty. Over the forward estimates, taxation revenue is forecast to increase at a more moderate rate of 4.4 percent as the economy returns to trend growth. With its record commitment to major infrastructure spending, it is likely that the Government will continue to rely on the existing State taxes to support its spending commitments, including an increasing reliance on property related taxes such as land tax and stamp duty. The table below summarises the amount of revenue from each category of State taxes and the percentage each category represents of the total revenue. This table excludes Victoria s allocation of GST revenue or money collected from fines, dividends, and other revenue sources. State taxes summary State Tax (Revised) (Budget) Increase/ Decrease $M % $M % Payroll Tax $4, % $5, % 4.2% Land Tax $1, % $1, % 16.9% Congestion Levy $ % $ % 32.1% Land Transfer Duty $4, % $4, % 6.0% Other Property Duties $ % $ % 1.5% Metropolitan Improvement Levy $ % $ % -1.0% Fire Services Levy $ % $ % -0.7% Financial Accommodation Levy $ % $ % 31.2% Growth Areas Infrastructure Contribution $ % $ % -14.0% Gambling Taxes $1, % $1, % 8.3% Taxes on Insurance $1, % $1, % 4.3% Motor Vehicle Taxes $1, % $2, % 12.3% Other taxes and levies $ % $ % 2.8% Total Taxation $16, % $18, % 7.2%

5 3 Payroll tax continues to be the dominant source of State taxes revenue, accounting for approximately 29 percent of the total. Notwithstanding the reduction in the payroll tax rate, payroll tax revenue is expected to grow by 4.2 percent in reflecting an improvement in employment growth compared to the previous three years. However, as recognised in the Budget papers, with the trend towards employment growth in industries that are exempt from payroll tax (health care and social assistance industries) recent collections have been weaker than expected. While collections are expected to increase as the economy improves, this also suggests that as the economy and various industries undergo structural change, the burden of tax will potentially be limited to a smaller base and possibly some industries that can least afford it. Land tax and land transfer duty represent 9.7 percent and 25 percent respectively of the State taxes revenue base. The improvement in the property market is driving higher revenue from land tax and land transfer duty. The major source of revenue for the State is the distribution to Victoria of its share of GST revenue collected by the Commonwealth. However, the Government notes that the Budget is facing revenue pressures from GST funding. In Victoria is estimated to receive only 22 percent of the GST pool, well below the estimated population share in that year of 24.8 percent.

6 4 Metropolitan planning levy The Government has targeted property developers with a new levy on planning permit application fees for projects worth more than $1 million. The levy will be imposed at a rate of $1.30 for each $1,000 of the development cost. Projects below $1 million in value will not be subject to the levy. The levy will take effect from 1 July 2015 and will be administered and collected by the State Revenue Office. The levy will apply in addition to the permit application fee, which will still be paid to the local council as currently occurs. The levy is expected to raise an estimated $17.1 million per year. Funding from the levy is to be used by the Government to deliver Plan Melbourne initiatives. The funding will be available to the Metropolitan Planning Authority to implement a more streamlined planning system. While we were pleased with the reforms to developer contributions which Matthew Guy, the Minister for Planning, announced prior to the Budget on 1 May, it is disappointing that an additional property tax will now be levied by the Government when its key budget impetus is to increase property and infrastructure development. The introduction of an additional levy on developments costing more than $1 million introduces a further tax on property when developers already contend with a number of State property taxes, including land tax, land transfer duty and developer contributions. For example, in respect of a planning permit for a $10 million development in Metropolitan Melbourne, the levy will add an additional $13,000 to the cost of the development. We consider that the introduction of this levy, in addition to the recent expansion of the Congestion Levy, exemplifies the Government s strong reliance on property taxes. When the GST was introduced way back in 2000 one of its aims was to reduce over time the State and Territory Governments reliance on State taxes. Unfortunately, the reality is that all of the State and Territory Governments, including Victoria, continue to rely heavily on State taxes and in particular property taxes to support their spending commitments. Ultimately, the Metropolitan Planning Levy adds a further impost to the fixed costs of a development. It also contradicts the Government s attempts over the past three years to lessen the cost of home ownership through the introduction of the stamp duty concession for first home buyers. At the end of the day, the cost of the levy is likely to be passed on to home buyers.

7 Payroll tax 5 From 1 July 2014 the rate of payroll tax will reduce from 4.9 percent to 4.85 percent. The tax-free threshold will, however, remain at $550,000. While any relief from payroll tax is welcome, the rate cut of 0.05 percent will only provide a minor saving for small and medium businesses operating in Victoria. For example, a business with an annual payroll of $2 million will save $725 per annum from 1 July However, that business will stay pay almost $30,000 more than an equivalent business based in Queensland. The payroll tax threshold has not increased for more than 10 years and is very low in comparison to the thresholds in New South Wales ($750,000) and Queensland ($1,100,000). Due to the significant wages growth that has occurred over the past 10 years, the number of smaller businesses that have been dragged into the payroll tax net has significantly increased. Payroll tax is a big cost for those businesses and impedes their ability to grow and to employ more staff. More than 80 percent of the respondents to the Pitcher Partners Pre Budget Survey were in favour of an increase in the payroll tax threshold or a reduction in the payroll tax rate. We believe they are likely to be disappointed with the minor relief offered by the 0.05 percent reduction in the rate from 1 July 2014.

8 6 Land tax and stamp duty Land tax and land transfer duty There is no reduction in the rate of land tax or the rate of stamp duty payable in respect of transfers of land or significant changes of ownership in land holding companies and unit trusts. Land tax revenue is forecast to increase significantly in by 16.9 percent as a result of the local council land revaluation process that occurs every second year. Although this will impact all clients with taxable land holdings in Victoria, the primary impact will be on residential property developers and investors. The Government is expecting the renewed strength in the residential property market to be reflected in the revised land values. There are also expected to be upward movements in the value of commercial and industrial land, although these will be more modest than in respect of residential land. Land transfer duty will continue to be a prominent source of revenue for the State Government, with the total take forecast to increase by more than $1 billion over the next four years. We expect to see a continued focus by the State Revenue Office on landholder duty, which applies to any significant changes of ownership in companies or unit trusts that own at least $1 million of land in Victoria. We have experienced a marked increase in review activity by the State Revenue Office over the past 12 months and the Government s reliance on land tax and stamp duty means that this activity is likely to continue and increase even further. Duty on life insurance The Government has announced that the stamp duty on life insurance policies will be abolished from 1 July This decision has resulted from findings that most life insurance products are now bundled with superannuation savings and as a result the stamp duty has not been applied correctly. The Budget estimates that the abolition of the stamp duty on life insurance policies will result in a reduction of tax revenue totalling $16 million over 4 years.

9 First home owner stamp duty concession 7 In line with the Government s election promise to phase in a 50 percent stamp duty concession for first home buyers over four years, the stamp duty concession for eligible first home buyers will increase to 50 percent for the acquisition of new and existing homes settled on or after 1 September Those first home buyers will therefore pay 50 percent of the stamp duty normally payable on the acquisition of a residential property. The timeline below illustrates the progress of the first home owner duty concession since it was first announced by the Government, followed by a table setting out a comparison between the concessional rates of duty and standard rates of duty applicable to the purchase of a residential property in Victoria by an eligible first home owner that settles on or after 1 September Timeline of stamp duty concession for eligible first home buyers 1 JUL JAN JUL SEP % Reduction 10% ( Total 30% Reduction) 10% (Total 40% Reduction) 10% (Total 50% Reduction) Stamp duty rates for dutiable transactions settled on or after 1 September 2014 Dutiable value Concessional rates of duty Standard rates of duty $0 - $25,000 $25,000 - $130,000 $130,000 - $440,000 $440,000 - $550,000 $550,000 - $600,000 (1.4% of the dutiable value of the property) less 50% ($ % of the dutiable value of in excess of $25,000) less 50% ($2, % of the dutiable value in excess of $130,000) less 50% ($18, % of the dutiable value in excess of $440,000) less 50% ($28,070 +6% of the dutiable value in excess of $550,000) less 50% 1.4% of the dutiable value of the property $ % of the dutiable value in excess of $25,000 $2, % of the dutiable value in excess of $130,000 When the concessional rates are applied to the acquisition of a residential property for $600,000 (being the maximum price allowable to receive the concession), they result in a stamp duty saving for the purchaser of approximately $15,500.

10 8 Increases to motor vehicle duty and registration fees The stamp duty on new motor vehicle registrations and the transfer of previously registered motor vehicles will rise by $0.40 per $200 or part thereof, from 1 July More specifically, the rates will rise from 3.0 percent to 3.2 percent for new passenger cars valued below the luxury car tax threshold, and from 5.0 percent to 5.2 percent for those valued above the threshold. The rate on new non-passenger cars will rise from 2.5 percent to 2.7 percent, and the rate on used vehicles will rise from 4 percent to 4.2 percent. In addition to this, light vehicle registration fees will increase by $25 to $270 (including indexation) from 1 July There will be no changes to the existing concessions available, which include discounts for pensioners, health care card holders and primary production vehicles. A light vehicle is a car, motorcycle, motor trike or a truck that weighs 4.5 tonnes gross vehicle mass (GVM) or less. These changes were previously announced as part of the Budget update in April and are expected to raise an additional $136 million in The Budget states that the additional revenue will help fund new road infrastructure and support opportunities for workers in the automotive industries.

11 9

12 Get in touch... Melbourne Sydney Perth partners@pitcher.com.au partners@pitcher-nsw.com.au partners@pitcher-wa.com.au Adelaide Brisbane Newcastle partners@pitcher-sa.com.au partners@pitcherpartners.com.au newcastle@pitcher.com.au Craig Whatman Executive Director craig.whatman@pitcher.com.au Michael Langhammer Executive Director michael.langhammer@pitcher.com.au Ann Sewell Manager ann.sewell@pitcher.com.au William Zhang Manager william.dz.zhang@pitcher.com.au