Businesses, landlords slugged for $31.5b COVID-19 debt

THOUSANDS of large businesses and landlords will foot most of Victoria’s COVID-19 debt bill under a $31.5 billion state budget repayment plan.

The 2023/24 Victorian Budget, to be handed down in Parliament by Treasurer Tim Pallas today (Tuesday, May 23), detailed a 10-year COVID debt levy as part of a three-pronged strategy.

The $8.6 billion levy will firstly target the top five per cent of businesses with national payrolls above $10 million but include exemptions for hospitals and charities.

Victoria’s tax-free threshold for general land tax will be lowered and a fixed charge added for those who own multiple properties under the second part of the levy.

Mr Pallas said about 860,000 Victorian landlords, people with holiday homes and commercial property owners will be affected.

An average landlord with $650,000 of land holdings would pay $1,300 a year as part of the levy, which is expected to collectively raise $8.6 billion over the forward estimates.

“We think it’s fair that Victorians with multiple properties make a modest contribution to repaying COVID debt,” Mr Pallas told reporters.

The family home will not be impacted by the changes.

Other elements of the strategy are returning the size of Victoria’s public service back to pre-pandemic levels and growing the previously announced $10 billion Future Fund, including legislating it to ensure it can only be used for debt reduction.

About 3,000 to 4,000 public sector workers are expected to be affected by the cuts but frontline workers will be spared.

The public service staff bill is projected to rise from $35.3 billion next financial year to $38.3 billion for the 2026/27 financial year due to increasing wage costs.

Victoria spent $10.7 billion on health and $11 billion on business support through the COVID-19 pandemic, with Mr Pallas branding the debt-busting measures temporary and targeted.

“We’re ensuring that while our kids will of course have memories of the trauma that was the COVID years, they won’t have to necessarily be paying for that trauma for the rest of their lives and for future generations,” he said.

The 2023/24 budget forecasts Victoria will post a $1 billion surplus in another two years – $100 million more than predicted before the November state election – and another of $1.2 billion for 2026/27.

Net debt is expected to hit $135.4 billion at the end of the next financial before rising to $171.4 billion by mid-2027, equating to 24.5 per cent of gross state product.

Stamp duty will be scrapped for commercial and industrial properties from mid-2024 and be replaced with an annual property tax of one per cent of the property’s unimproved land value.

Commercial and industrial properties will transition to the new system once sold and the property tax will be paid yearly from 10 years after the transaction.

Reducing and eventually abolishing business insurance duty, increasing the payroll tax-free threshold from $700,000 to $900,000, and removing the payroll tax exemption for high-fee private schools are among other new measures.

The latter reform will mean about 110 schools lose their tax-free exemption.

As well, the absentee owner surcharge rate will rise from two per cent to four per cent and Victoria’s wagering and betting tax rate will increase from 10 per cent to 15 per cent from mid-2024, almost doubling revenue for the state’s racing industry.

Both initiatives mirror those in place in NSW.

2023/24 Victorian Budget snapshot

Net operating result: $4 billion
Revenue: $89.3 billion

Net debt: $135.4 billion by 2023/34, $171.4 billion by 2026/27
Interest repayments: $5.6 billion
Total tax revenue: $35.3 billion

Land tax revenue: $6.1 billion
Land transfer duty revenue: $7.4 billion
Payroll tax revenue: $8 billion
Mental health levy revenue: $912 million
COVID debt levy: $2 billion
Gambling tax revenue: $2.6 billion
Total expenditure: $93.3 billion

Infrastructure investment: $27.1 billion
Employee expenses: $35.3 billion
Unemployment: 4.25 per cent

 – WITH AAP