Victoria’s latest budget has revealed a land tax fail that’s extended for two years.
Property industry experts are sounding the alarm bell after consecutive budgets have shown a land tax grab to recoup Covid-era debts is now costing Victoria’s coffers.
The state is set to make less from its contentious extension to the tax than they did in the 2024-2025 budget two years ago.
And, for the second year in a row, the state’s land tax take came in below projections, with a $200m shortfall in yesterday’s budget papers being flagged as a sign of an ongoing property investor exodus.
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This year’s 2026-2027 budget indicates the state expects to collect $6.456bn in land tax revenue, as well as a further $1.197bn in Covid Debt Levy funds from landholdings this financial year.
Last year’s budget papers projected a $6.63bn windfall for land tax and $1.223bn for the Covid Debt Levy – Landholdings.
Those same papers showed a $580m shortfall against forward estimates for the two taxes from the 2024-2025 budget.
The government implemented a Covid Debt Repayment Plan in 2024, intended to help balance the state’s books after heavy spending during the state’s lockdown era, with expanded land tax a key component of how they intended to recover funds.
Property investors are believing to be exiting Victoria faster than they’re buying in, hitting the state’s land tax revenue.
This year’s land tax take is $67m below the $6.523bn collected in the 2024-2025 budget — and $61m behind the $1.258bn Covid Debt recovery component it collected in the same year.
Combined, the state is $128m behind where it was two years ago.
Property industry experts have warned this could only occur for two reasons, if home values fell in the past year or if the number of properties subject to land tax had declined.
Latest PropTrack data, to the end of April shows Melbourne’s $1.005m median house value rose 1.5 per cent in the past year while unit prices gained 3.2 per cent to reach $629,000.
Regional Victorian house prices surged 6.7 per cent to reach $636,000, while units outside of the state capital gained 5.8 per cent to reach $438,000.
Rental property numbers are believed to be falling, with the latest Homes Victoria Rental Report shows the 657,000 active bonds in September last year was down 1 per cent from the year prior. In September 2023 the state had 671,109 active bonds.
Melbourne’s rental market has had significant declines in active bonds, according to government figures.
Real Estate Institute of Victoria chief executive Toby Balazs said they had consistently argued attracting more investors was the best path towards generating more property tax revenue, and that four in five Victorians would have supported tax reform to promote investment in Victoria.
“It’s a missed opportunity to provide any real incentives to attract or maintain investment in Victoria,” Mr Balazs said.
“Unfortunately we don’t see any incentives for investment or the resultant supply to take place.”
Property Investment Professionals of Australia chair and buyer’s agent Cate Bakos said the data signalled the government would have to “find a new way to get revenue” — noting that there had been an ongoing sell off of holiday homes in addition to investors exiting.
The 2026-2027 Victorian budget has revealed concerning figures for the state’s land tax take. Picture: Asanka Ratnayake/Getty Images.
“They now have two issues with them (the government) getting less revenue, and more pressure on rents,” Ms Bakos said.
Homes Victoria data shows Melbourne’s median rent rose 3.5 per cent to $580 a week in the 12 months to September last year, and in regional Victoria they rose 4.6 per cent to $470 a week.
Property Investor Council of Australia chair Ben Kingsley said lower than expected returns from land tax should come as no surprise to the Allan government.
“That’s going to be the outcome if you try to kick investors out of the state,” Mr Kingsley said.
“It’s another signal that the Victorian government has not got their property settings correct and these are unintended consequences.”
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