Victoria is set to spend $90.1 billion on buildings and infrastructure over the next four years as the state seeks to reboot its economy following COVID.

Releasing its 2021/22 budget, the Victorian Government says it expects its operating deficit from transactions to fall from $17.4 billion in the COVID-ravaged 2020/21 to $11.6 billion in 2021/22 before continuing to decline to $2.1 billion by 2024/25.

This will happen as the state’s economy grows by 6.5 percent in 2021/22 following a two percent contraction in 2020/21 before falling back to 3.25 percent in 2022/23 and 2.75 percent in 2023/24.

Unemployment is expected to fall from 6.5 percent in 2020/21 to 5.75 percent in 2021/22.

For the construction sector, however, the big highlight revolves around a surge in infrastructure investment which will see capital investment average $22.5 each year and come to $90.2 billion over the next four years in total.

Of this, $7.1 billion represents new projects which have been added in this budget.

At this level, average levels of capital investment over the next four years will be higher compared with the $4.9 billion average over the ten years to 2015/16 by a factor of four.

New project additions include:

• $1.4 billion in new schools, school upgrades and maintenance, and $72 million to redevelop and upgrade TAFEs
• $986 million for 25 new metropolitan trains and to upgrade a train maintenance facility, providing local jobs and improved services
• $507 million to build mental health facilities in response to the recommendations of the Royal Commission into Victoria’s Mental Health System
• $368 million to deliver enabling infrastructure for Melbourne’s Next Generation Trams; and
• $240 million to upgrade rail infrastructure in the city’s south-east to allow for increased train speeds, better reliability and improved service outcomes.

Spending in these areas will come on top of significant construction work on:

• Major transport projects such as the Metro Tunnel, West Gate Tunnel, North East Link and the Level Crossing Removal Project
• The $5.3 billion Big Housing Build investment in social housing.

Whilst the ramp up in investment is beneficial for the state’s construction sector, it will see the state’s net debt increase from $77.5 billion or 16.7 percent of GDP as at June 30 2021 to more than double to $156.3 billion by June 30 2025.

Aside from infrastructure spending, another budget measure which impacts the property and construction sector revolves around the property taxation.

Here, the government has provided some stamp duty concessions to support the CBD apartment sector.

These include:

• A temporary increase in the eligibility threshold for the off-the-plan duty concession to $1m for all homebuyers who call the home their principal place of residence (for contracts entered into from 1 July 2021 to 30 June 2023). The dutiable value of the property can be up to $1m.
• A temporary stamp duty concession of up to 100 percent for new residential property within the Melbourne local government area up to a value of $1 million
• For new residential property that has been unsold for less than 12 months since completion, a 50 per cent concession will be provided (for contracts entered into from 1 July 2021 to 30 June 2022).
• An exemption of stamp duty for the purchase of a new property that has been unsold for 12 months or more since completion will be exempt from duty. The exemption/concession will apply to the duty otherwise payable, exc. foreign purchaser additional duty (for contracts entered into from 21 May 2021 to 30 June 2022).

As previously foreshadowed, however, the government will also raise further revenue through increasing taxes.

As far as property and construction is concerned, the main changes in this area are:

• A 19 per cent increase in land tax on properties valued at between $1.8 million and $3 million, with the rate to increase from 1.3 to 1.55 per cent.
• A 13 per cent increase in land tax on properties valued at more than $3 million, with the rate to increase from 2.25 per cent to 2.55 per cent.
• An 18.2 per cent increase in stamp duty on a property’s value above $2 million, with the value up to $2 million to be taxed at the current rate.
• A new ‘Rezoning Tax’, which will be levied on any uplift in the value of land holdings in cases where the land is rezoned. A tax-free threshold will apply for uplifts up to $100,000 in value. After that, a 62.5 percent tax rate will apply for uplifts between $100,001 and $500,000 on the portion of the uplift which exceeds $100,000 whilst a 50 percent tax rate will apply to value uplifts which exceed $500,000.

Whilst welcoming some measures, building and construction lobby groups remain concerned about the new taxes/tax increases, arguing that these will add to the cost of new housing delivery.

Danni Hunter, Victorian Executive Director of the Property Council of Australia, said the Victorian Government had become ‘addicted’ to the revenue derived from property taxes.

“With NSW and other states working toward rationally reducing their reliance on property taxes, the Victorian Government has demonstrated that it has a very real addiction to this revenue,” Hunter said.

“Now is not the time for budget repair and is not the time to over-tax an industry that employs one in four Victorian workers.

“Victorian families will pay more to buy a house that suits their needs. Victorian businesses will pay more in the form of increased land tax and costs on businesses through their office space or warehouses. This, in turn, will flow through to the cost of products and services for every Victorian.”

Ms Hunter said the Victorian Government was out of step with other state governments in its tax-heavy approach to the budget.

“With governments around the country focused squarely on stimulus and increasing investment because they know it is good for jobs and their communities, the Victorian Government has taken the opposite approach,”.

Master Builders Victoria (MBV) CEO Rebecca Casson has welcomed ‘most’ of the announcements but expressed ongoing concern about the potential impacts of the increases in land and property taxes.