Victoria set out to raise more than $5.65bn from a land tax change aimed at investors. On current Treasury data, it will collect closer to $4.67bn by the end of this financial year. That is a gap of about $984m, and it may say more about how investors behave than about how the state budgets.
A tax that shrinks the thing it taxes
The Covid Debt Levy dropped the land tax threshold for secondary properties to $50,000 of land value from the start of 2024. The forecast assumed the same pool of investors would keep holding the same stock and simply pay more.
That assumption has not held. The 2024 financial year was budgeted to bring in $1.357bn from the levy but delivered $1.19bn. The state has missed its estimate every year since. The shortfall for the current year is put at more than $290m against the original expectation.
Even the forward estimates look modest. They run to 2030, and the final year sits at $1.38bn. At no point in that window does annual collection climb past about $1.4bn.
Fewer rentals, fewer taxpayers
The revenue gap lines up with the rental market. The number of active rental bonds, a rough proxy for tenanted homes, has fallen for eight straight quarters. The latest Homes Victoria report shows 657,002 tenanted homes, down from 671,109 in September 2023.
A decline of roughly 14,000 homes is small against the whole stock. But it points in one direction while population keeps growing. Investors who sell to owner-occupiers take a home out of the rental pool and out of the levy base at the same time.
That creates a loop. Less rental supply puts upward pressure on rents. Higher rents make tenants worse off, which is the opposite of what most voters expect from a tax on landlords.
Key numbers
- Expected levy take to end of this financial year: more than $5.65bn
- Likely actual take: about $4.669bn
- Gap: roughly $984m
- Active rental bonds: 657,002, down from 671,109 in September 2023
Why the threshold promises may not fix it quickly
Both major parties now plan to wind the threshold back to $300,000. Labor would lift it by $25,000 a year until 2034. The Coalition would lift it by $50,000 a year to reach the same point by the 2032 financial year.
Investor groups say the faster path is the better deal, but they also say the damage is partly done. Some owners sold believing the tax was permanent. They cannot undo that, and a phased relief schedule does not give them a reason to re-enter in a hurry.
There is also a trust problem. A rule that changes twice in a decade is hard to build a long-term holding strategy around. Investors price in policy risk the same way they price in interest-rate risk, and a state that reverses course invites the question of what it might do next.
The counterargument
Not every sale is a loss for the market. Some investor exits become first-home-buyer purchases, which helps owner-occupier demand. A broader land tax base was also intended to nudge investors away from holding marginal parcels.
But the budget numbers suggest the design was too optimistic about who would stay and pay. A revenue measure that shrinks its own base ends up needing a second policy to repair the first.
For more on how supply constraints interact with investor behaviour, see our look at whether build-to-rent operators lift yields or just shuffle supply and how falling housing approvals are squeezing project margins.
What to watch from here
If you are a Victorian investor, the practical question is net yield after land tax, not the headline rent. Run the numbers on your own holding under both threshold schedules before the election, and do not assume a sale is the only option.
If you are a renter, watch vacancy rates and the active bond count in the next Homes Victoria release. Those two figures will show whether the pool is still shrinking or has begun to stabilise.
For policymakers, the lesson is simple: forecast the behavioural response, not just the rate.
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General info, not financial advice.
