May’s Victorian Budget implemented a new windfall gains tax for properties whose value is boosted by a council rezoning. This tax will apply to properties where the value is boosted by more than $100,000, with a 50% tax on windfalls above $500,000.
The clearest indication that this windfall tax is good policy has come from the Urban Development Institute of Australia’s (UDIA) opposition, with the CEO of the UDIA’s Victorian branch, Matthew Kandelaars, calling for an urgent review of the windfall tax.
Modelling funded by UDIA Victoria claims the rezoning tax will reduce state economic output by $7 billion and result in the loss of 20,000 direct jobs, while at least 6,700 dwellings will not be built if the Budget measure goes ahead:
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UDIA Victoria chief executive Matthew Kandelaars said the tax was a “blunt tool” with major implications for Victoria’s urban development industry.
“This proposed new property tax will cost thousands of Victorian jobs and result in billions in lost economic activity, right when our state needs to ignite its Covid recovery,” Mr Kandelaars said.
“The entire approach needs urgent review. The present proposal, which is still not backed by draft legislation, is full of holes and is already impacting industry confidence and threatening economic activity and the delivery of housing projects.
The UDIA has proposed an alternative model:
“We don’t like or want another new tax, because Victoria’s urban development industry already contributes billions annually to the Victorian economy,” Mr Kandelaars added. “However, we are developing alternative and smarter solutions that can avoid the worst outcomes.”
Under the proposed alternative model, developers would be taxed on a per-hectare basis, with contributions for regional Victoria capped at 50 per cent of metropolitan Melbourne, reflecting the differences in the markets.
Funds collected under the model would be hypothecated and invested back into the communities where they were raised.
The windfall gains tax is excellent policy. The only reason why these types of land deals escalate in value is because the government rezones them for development. Therefore, it makes perfect policy sense for the government (taxpayers) to share some of the value uplift.
Landholders and speculators should not be gifted monopoly-style rents courtesy of rezoning decisions made by the government. Taxpayers should capture some of these rents.
Value uplift taxes also discourage corruption by reducing the windfall gains from planning decisions.