Thursday, 2 May 2024

Bills

Commercial and Industrial Property Tax Reform Bill 2024

Second reading

Debate resumed on motion of Tim Pallas:

That this bill be now read a second time.

And Brad Rowswell’s amendment:

That all the words after ‘That’ be omitted and replaced with the words ‘this house refuses to read this bill a second time until the government commits to:

(1) further consultation on the proposed CIPT rate including the cost neutrality of the proposed reforms and how the reforms will affect owners of regional and non-regional commercial and industrial properties;

(2) providing investors with certainty and confidence against any potential future tax increases; and

(3) making public the modelling assumptions underpinning the $50 billion economic uplift anticipated from this reform scheme and the rationale for the risk margin component of the proposed 10-year transitional government loan, including any future changes made to the risk margin component of the loan rate’.

Nathan LAMBERT (Preston) (11:58): I would like to begin just by thanking the member for Thomastown for her thoughtful and moving contribution to the take-note motion on abuse and neglect in residential care.

It is a pleasure to get back on my feet for another 8 minutes and 8 seconds to speak on the Commercial and Industrial Property Tax Reform Bill 2024. When we adjourned yesterday we were discussing the benefits of that bill, and I would like to briefly recap that discussion. Of course one very obvious benefit is the more stable revenue that the state government will see; we will not see the variance that we saw through transaction volume under the current arrangements. Another obvious example is the greater mobility that we will see for businesses – they will be able to move and expand to better locations – and there will be I think an important flow-on effect there for congestion and for emissions.

And then finally there is the important impact on land banking and underutilisation of commercial and industrial land. I would like to very much echo the comments in that respect by the member for Footscray. She is spearheading I think a very important conversation about the land banking of commercial land. She talks about the Forges site and the old Little Saigon market in Footscray. We certainly have very similar sites in Preston and Reservoir. I know when we doorknock around High Street people often say to us in the context of the Preston Market debate, ‘Why would you knock down a building that is used by thousands of people a week to build a new residential apartment building when you could instead knock down one of the dozens of unused commercial buildings on High Street that are currently simply serving as homes for rats and pigeons?’ And I do think they have a valid point. I am sure most of us here could name sites in our electorates that are frustratingly underused. I might take the chance to add that the Calvary care site at 800 Plenty Road, the old McDonald’s site – which they have finally removed the rubbish from – still sits unused, in stark contrast I should say to this Labor government’s building of a very nice substation next door.

I also want to touch on the benefits of applying this reform to commercial and industrial property only, which I think is the real ingenuity of this bill, if I could put it that way, and perhaps has been underexplored in the debate so far. The commercial and industrial sector is where you get the most uplift from these sorts of reforms, certainly on a per-property basis, but it is also I think the sector with the least downside risk. One of the well-known issues with removing stamp duty and replacing it with a land tax for residential property is that there are some people who own their own home but have very little in the way of cash flow, most notably pensioners, and I think there are very genuine concerns for how that sort of reform might affect those people. I think inevitably there will be some for whom it would be difficult.

It is a different proposition for commercial property owners. The member for Ovens Valley tried to paint a picture of negative impacts for those whose business is effectively their superannuation, but his contribution was not accurate – it was scaremongering. Those people, if they do own commercial property as part of their superannuation, will of course need to sell that property in order to realise that money. They would face stamp duty as it currently stands. The switch from stamp duty to land tax makes no significant difference to their superannuation beyond the normal fluctuations that we all see in our superannuation. I thought the member for Ovens Valley was very much overstating the case. Finally, I think a standout reason for applying this reform to commercial and industrial property in particular is that it is well supported by that sector. I think the member for Bentleigh in the contribution yesterday went through the strong support. I think it is true to say that that strong support does not yet exist for primary producers or for the residential sector. There is more work to do there, and I do think some of the advocates in that area have perhaps overlooked some of the legitimate counterarguments.

I think people do have a revealed preference for choosing the incidence of a large tax like stamp duty or land tax, and they do that under the current system; they can sort of choose when they pay a stamp duty. There are also some of the political risks that we see with council rates, because when you have a broad-based land tax it does tend to be the subject of populist campaigns. I think most importantly there are still remaining valid equity concerns about residential stamp duty. I noticed the member for Prahran – the Greens are not here at the moment – indicated that the Greens supported a residential land tax. I do think it is really important to note that the distributional effects of such a policy have not been fully explored. We do not have the evidence base we need, and I would encourage the Greens to seek that before they make claims that land tax would benefit young people, among other claims that the member for Prahran made.

I would like to deal if I can with the reasoned amendment by the member for Sandringham, who is not here, but in essence the member for Sandringham’s reasoned amendment calls for more consultation, which of course is the reasoned amendment you propose when you do not really have a reasoned amendment. In fact I could quote the member for Gippsland South, who much more accurately pointed out that this announcement was made 12 months ago. There has also been a parliamentary inquiry into the topic since then. I do think that constitutes a very significant amount of public consultation. I do note further for the member for Sandringham’s benefit that we have 10 years until the reforms kick in fully. There is a little bit of time for fine-tuning should that prove necessary.

Then with respect to the member’s substantial amendments, there is the 0.8 per cent versus 1 per cent difference that the member for Sandringham has proposed. I am not sure what particular insight into the state of the Victorian economy in 2034 the member for Sandringham has to propose that change, but I suggest that it possibly reflects some of the risk of populist campaigning that I referred to earlier. I am not sure that difference is particularly substantial. The member proposes that clause 57 change with respect to transparency about risk premia. With the fullest respect, I do not think anyone who actually understands risk premia would think that proposal was especially substantial. And then finally there is the member’s proposal around the regional 0.4 per cent rate, the differential rate, for regional commercial and industrial property.

I do think it is important here to delineate between business owners in the regions and the people that own the property, which outside of primary production are often different people. The Treasurer has been a huge supporter of concessions for regional business owners, notably on payroll tax and also on stamp duty, and I suspect as we get closer to 2034 it will become clear that this reform supports regional businesses in the form that we see it today.

A further and final reason for restricting this reform to industrial and commercial property is the fact that existing stamp duty arrangements, as we know, for that sector are already very complex. There were complaints from the opposition earlier that this bill is complex, but I am not sure they have tried reading the way that stamp duty is applied to real estate investment trusts and other complex commercial transactions. I think the reforms we have in front of us will be an improvement in that respect.

It is a good reform, it is a groundbreaking reform, but also, very much in line with the way the Treasurer has approached his entire career, it is a well-judged and incremental reform. I thank the Treasurer and his team. I thank Chris Barrett at the Department of Treasury and Finance. I understand Chris Mouratidis has been heavily involved, and I thank Chris, who I know well, for his involvement as well. It is a good bill, and I commend it to the house.

Chris CREWTHER (Mornington) (12:06): I rise today to speak on the Commercial and Industrial Property Tax – that is, the CIPT – Reform Bill 2024, a bill of significance which removes commercial stamp duty on dealings in relation to commercial and industrial land and introduces in its place a commercial and industrial property tax chargeable annually. This is all in an effort to try to stimulate economic growth – which I note has been hindered by those opposite – and productivity by removing a significant barrier for businesses seeking to invest, expand or relocate their operations.

It is said that the abolition of commercial stamp duty will generate $50 billion in cumulative net present value over the next 40 years, hopefully resulting in a greater quantum of commercial property transactions. Yet those in the industrial sector remain cautiously optimistic about the introduction of the annualised tax, and this bill is yet to instil a greater degree of confidence in the commercial property market. Total returns for industrial property in Victoria are now very close to zero for investors due to a sharp fall in valuations, ultimately leading to negative growth since early 2023. Indeed the commercial property market has been in a slump for a while. While the removal of commercial stamp duty is generally said to be supported by leading economic, business and property industry groups, many industry experts believe that the government should be doing more. While the reduction in up-front cost is welcomed, there is still great concern out there that it will just be replaced with an annual cost that could quickly spiral out of control as the base taxable value rises in coming years.

On this point, the government are not proposing to index this rate to protect it from market increases over time. There are also no assurances to protect business owners from further tax increases in the future. I mean, do Victorians really trust the Allan Labor government to just not increase this base rate over time? I think if we look at this government’s track record when it comes to taxation and increased taxation, as we have seen with land tax increases, the schools tax and many other taxes, commercial property investors should be very, very worried. When asked about this uncertainty in the commercial property market, the government overall did not have much to say and acknowledged that it is difficult to anticipate the market impacts of their reforms. While they expect the policy will increase transactions over time, this is expected to occur gradually and will likely pick up after the final stamp duty liability is paid on properties.

Going into a bit more detail, let us have a look at some of the difficulties associated with this bill. Firstly, we have the sneaky removal of the stamp duty concession for commercial and industrial properties purchased in regional Victoria. The proposed CIPT rate removes regional stamp duty concessions by stealth, imposing an ongoing 1 per cent tax on unimproved land for all properties. Already businesses in regional Victoria are hanging on by a thread, with interest rates, insurance premiums, hikes in power costs, tax increases on liquor licences and more making the cost of doing business very difficult, if not impossible. The government need to be doing everything that they can to incentivise investment and interest in businesses and industry in regional Victoria, and indeed on the Mornington Peninsula, which is regional, as the member for Nepean will attest to, but is classed for some reason by this state government as metropolitan. But this government do need to do more because they need to incentivise that investment and interest in businesses and industry in regional Victoria, not to sneakily remove what they welcomed only a few years ago as an incentive for investors to look at opportunities outside of Melbourne.

Secondly, the CIPT rate is proposed to be set at 1 per cent of unimproved land value. The government has not thus far provided any rationale for why this rate was chosen above a lower rate. As mentioned, for long-term owners of commercial and industrial property this tax will impose a much higher impost over time than otherwise would have been paid through stamp duty. In the end whether or not the taxpaying investor actually benefits from this change depends on the capital improved value of the property itself, the unimproved value of the land and how long the property is held. Say you have a $10 million property with an unimproved land value. The duty saving is $630,000, while the additional land tax value is $50,000 a year. If you keep the land for less than 12 years you end up paying less overall, as you have saved more in taxes than what you paid in yearly land tax. However, if you keep the land for 13 years or more the government ends up getting more money from you. At that point the amount you have saved in taxes is less than what you have paid in land tax. One of the golden rules of property investors is to buy and hold. Why is the government ultimately introducing measures that would make it cheaper for investors to sell early than to hold on for as long as they can? That is not an incentive at all.

On another note, in the first phase of the government’s proposed reform there is the risk of double taxation for purchasers of commercial property who enter into a contract of sale on or after 1 July this year. Under this reform scheme the first purchaser will be obliged to pay the final stamp duty liability. If this same purchaser holds onto the property for at least 10 years, they will effectively be hit twice, paying CIPT from the 11th year and for every subsequent year of ownership. While the legislation prohibits a landlord from passing on CIPT to tenants, commercial tenants are rightly concerned that the annual 1 per cent CIPT will be passed on to them through increased rents, as has been the case with the government’s recent increase to land tax, which ultimately is hitting renters. Furthermore, in the example above that we have used, the landowner would pay a normal land tax of $84,650 and now an additional $50,000 in land tax for a total of $134,650. This is a substantial eat into the rental yield received from the property.

While the focus of this bill is to remove commercial stamp duty on dealings in relation to commercial industrial land, I would like to touch on what I believe would be a welcome move, to abolish stamp duty for residential property, as many constituents speak to me about the challenge they face to buy a home. Like with payroll tax, stamp duty is an unfair and inefficient tax. As I raised in my maiden speech, it makes it harder for particularly young people and others buying a first home to get into the market in the first place. It also means that young people in particular are buying much bigger properties than they need to start with, because they do not want to be paying stamp duty multiple times. That means they are getting into more debt and are paying more interest with bigger mortgages. It also reduces transfers of properties, which ultimately pushes up house prices and makes it harder for everyone to get into the market.

With the median house price in Melbourne for all dwellings being $783,261, you can expect to pay a whopping $42,000 at a minimum just in stamp duty. By the time you factor in other costs like conveyancing, bank charges, lenders mortgage insurance and more, you can expect that whopping $42,000 to hit something like the $55,000 mark at minimum. Then you have your deposit, which will be as low as $39,000 for 5 per cent but most likely will sit at over $156,000 for a 20 per cent deposit, particularly for those who are trying to avoid lenders mortgage insurance. When you consider that the national average in savings is around $36,000 and for young first home buyers sits somewhere between $5000 and $7000, one must ask the question: how is anyone ever going to be able to afford a house? Abolishing stamp duty for residential properties has the potential to be a significant policy intervention to boost the housing market, address affordability challenges and facilitate home ownership for young people.

I will note, as the member for Nepean noted the other day as well, with concerns about getting into the housing market we have seen in the Mornington Peninsula shire a proposal to introduce a development contribution levy of at least 3.3 per cent on new builds. If you are a mum and dad with a vacant piece of land and you want to build a new home, it is going to make it even harder and even more expensive for you to get into that market and to build that home. This is something that I am opposing, it is something that the member for Nepean is opposing and it is something that the member for Flinders in the federal Parliament is opposing as well because we cannot keep on adding costs to those who are trying to enter the market and to build new homes. We need to be reducing costs and increasing the supply of houses. If we introduce taxes like this or levies, it will actually mean that we have less housing supply in the market, which will ultimately push up house prices and push up rentals.

Lastly I note, going back to this bill, that the coalition will not be opposing this bill, as in principle removing stamp duty is a step in the right direction towards improving confidence and investment in Victoria’s commercial property market. However, there are several issues with the government’s proposed reforms which warrant textual amendments and a reasoned amendment, as we are doing, so I support the proposed amendments brought forth by the member for Sandringham, which amongst a few other things, call upon the government to consider the impacts of the CIPT rate on metropolitan and regional areas and propose a lower rate of CIPT for commercial industrial properties at 0.8 per cent and a lower rate of CIPT for regional Victorian properties at 0.4 per cent.

Juliana ADDISON (Wendouree) (12:16): I too am pleased to rise to contribute to the debate today in support of the Commercial and Industrial Property Tax Reform Bill 2024. The reason I am so pleased to do it is because this legislation provides a sensible and comprehensive approach to transitioning over time to an annual commercial and industrial property tax as a replacement for stamp duty currently levied on commercial property sales across Victoria, and I am pleased that the opposition are supporting it. It is great to follow on from the member for Preston, who made a very, very solid contribution, and he has addressed a number of views about the member for Sandringham’s proposed amendments to this bill. I just have to say that I concur with the member for Preston, and what he said about those amendments is exactly what I think.

I am going to get on with talking about the bill that we are introducing and why we think this is so important and beneficial to Victorian businesses, Victorian jobs and all Victorians. First and foremost, I would like to thank the Treasurer and his office as well as the Treasury for the work they have done in bringing this bill to the house. This is a landmark reform, and that is what this government is known for, landmark reforms. This is another one that we are very proud to be putting to the Parliament today, and it will bring in billions of dollars of economic benefit to Victorians and Victorian businesses. I really want to acknowledge and recognise all the efforts of those involved, because landmark reforms are so important to us who believe that Victoria needs to keep moving forward and be a reforming state as we are a reforming government.

In terms of thinking about the context and the consequences of this bill that is before the house, under the current arrangements stamp duty, officially known as land transfer duty, is an up-front cost for acquiring a commercial property in Victoria. The lump sum in effect discourages industrial investment and growth, thereby hindering development and employment opportunities more broadly, which is why we are proposing that we transition to a fairer annual system that will prove beneficial for Victorians. I was really interested to learn that there are over a quarter of a million commercial and industrial properties in the state of Victoria, and the associated stamp duty contributes to around 15 to 20 per cent of land transfer duty revenue. Reforming this system is significant, and mitigating the short-term budget impact requires a gradual approach, with this bill proposing a transition period of 10 years at a minimum. This approach will result in up to $50 billion in cumulative economic growth in net present value terms, yet it will also be broadly revenue neutral in the long term, which is something that everyone will be very pleased about. Acting Speaker Farnham, I am sure you are pleased about that revenue-neutral aspect of this great reform.

How are we going to achieve this? What the legislation under consideration today proposes is a new act. Often in this place we are just amending an act. This is a brand new act.

A member interjected.

Juliana ADDISON: It is exciting – a brand new act, a brand new law, not a change. The Commercial and Industrial Property Tax Reform Act 2024 is defined as a taxation law to be administered by the State Revenue Office under the Taxation Administration Act 1997 and is slated to commence this year from 1 July. I would like to give a shout-out to the State Revenue Office workforce, many of whom are based in my electorate at our beautiful GovHub building. I visited recently with Minister Williams, the Minister for Government Services. Some of the parents whose kids my kids go to school with work at the SRO. A couple of girls I went to school with also work at the State Revenue Office. It is a really great example of decentralisation and supporting jobs in the region. The State Revenue Office does a great job and creates really well paid, good jobs in the heart of my community, which is what this government is about – supporting regional Victorians.

The bill that is before us proposes reforms to the taxation of commercial and industrial property as defined by the Australian valuation property classification codes. I knew nothing about these codes before this, but now I am across them. A range of different codes are included. Commercially classified properties have codes between 200 and 299, industrial properties have codes from 300 to 399, extractive industries have allocated codes from 400 to 499 and industrial infrastructure and utilities have codes between 600 and 699. Interestingly, these codes are already in use for council rates and other uses. These codes are going to be part of it.

Another thing that I was interested to learn is that certain student accommodation locations, including those run as private ventures and not by a university or tertiary college itself, will be subject to these reforms. Mixed-use properties on one title are eligible if they are either solely or primarily commercial or industrial. I am learning stuff every day that I am this place, Acting Speaker Farnham, as I am sure you are.

Let us talk about what we are going to do as we begin this important landmark reform. While these reforms will begin from the middle of this year, in 2024, the commercial and industrial property tax itself will not begin for another decade – it will be interesting to see how many of us are still here in 10 years time – under a proposed gradual transition. This 10-year period commences when a property is considered to have entered the reform. There are a few criteria for this, and I want to make sure we understand what the criteria are – a contract entered into on or after 1 July 2024 with at least 50 per cent of non-exempt property transacting and with that property having a qualifying commercial or industrial use at the time of settlement. I hope it is really clear to everyone what that is. If these criteria are met, the property is liable for one final instance of stamp duty and then 10 years afterwards becomes liable for the annual commercial and industrial property tax.

What this bill also does is introduce transition loans to finance the final stamp duty payment as an option – and I really want to stress that it is an option – for eligible Australian citizens, residents and businesses seeking an alternative to the lump sum payment. These transition loans will help Victorian businesses to free up capital for investing in and growing their businesses, including creating jobs for Victoria. As the daughter of a small business man, I know how important that freeing up of capital is for people running small businesses. Small businesses are very much the heart of Ballarat; they are the drivers of my local economy. I know that going forward this will be an option for a number of small businesses to really help them kickstart their ventures.

Of course it is important that we have accountability measures with these loans, so these loans will be provided according to a strict assessment criteria by the Treasury Corporation of Victoria and repaid with interest across 10 annual payments so they are fully repaid prior to the property tax commencing. But – another important point – if the property is sold during this time, because 10 years is a long time, then the borrower must repay any remaining balance prior to settlement as the debt cannot transfer with the property. I guess it is just like when you sell a house, you need to pay off the mortgage and settle all of that – all that needs to be acquitted – before the transaction can go through.

I am running out of time on this interesting bill. There was so much that I wanted to talk about, but I am going to quickly summarise some of the other important parts of this reform, including providing some additional clarification concerning various aspects of these reforms. For example, a qualifying transaction for entering the reform can be a sale but it can also be the subdivision of a property already entered into the reform or a consolidation of multiple properties with over 50 per cent already entered. In these situations the resulting property would inherit the entry date of the parent properties rather than beginning a new 10-year date.

There is so much to talk about, but I want to say that a number of other acts will be amended, including the Duties Act 2000; the Taxation Administration Act 1997; the Treasury Corporation of Victoria Act ‍1992; the Heritage Act 2017; the Retail Leases Act 2003, which importantly clarifies that property tax cannot be passed on to the retail tenant; as well as the Property Law Act 1958 and the Sale of Land Act 1962. In closing, I welcome the introduction of the Commercial and Industrial Property Tax Reform Bill 2024.

Kim O’KEEFFE (Shepparton) (12:26): I rise to stand and make a contribution on the Commercial and Industrial Property Tax Reform Bill 2024. The bill before the house follows the announcement of the new tax in last year’s Victorian state budget, handed down in May, where the government announced that land transfer stamp duty on commercial and industrial properties will be abolished and instead replaced with a new tax.

While we fully support the removal of stamp duty from commercial and industrial transactions on this side of the house, we have concerns regarding the government’s proposed reform scheme. The bill seeks to reform the taxation of commercial and industrial property as well as amend the Duties Act ‍2000 and the Taxation Administration Act 1997, the Treasury Corporation of Victoria Act 1992 and other acts. From 1 July this year commercial and industrial properties will transition to this new system that the bill establishes and creates as they are sold, with an annual property tax to be payable from 10 years after the transaction. However, for commercial or industrial property purchased before 1 July this year, the tax reform will not apply. In addition, through the bill, properties that are used for residential purposes, primary production, community services, sport or heritage and cultural purposes, as coded primarily by the valuer-general, will also not apply.

The new commercial and industrial property tax will be 1 per cent of the property site value, but 50 ‍per cent of the property will be the interest in the land that is acquired with a positive duty liability and has a qualifying commercial or industrial use at the end of settlement. The tax replaces stamp duty and is separate from land tax, which will continue to apply. The bill and reform do not make any changes to land tax.

While the legislation prohibits a landlord from passing on the commercial and industrial property tax to the tenants, commercial tenants are rightly concerned that the annual 1 per cent CIPT will be passed on to them through increased rents, as has been the case with the government’s recent increases to land tax from 1 January this year. We expect there will be a similar outcry from businesses to what we are experiencing from Labor’s increase to the land tax base by lowering the tax threshold from $300,000 to $50,000 while slapping an additional flat tax of up to $975 on Victorian households. We are seeing the significant financial detrimental impact this is having, with many selling their properties due to increased land tax costs making the property no longer a viable financial investment, with rental increases passed on to the tenant. The Treasurer himself stated that his own land tax hike will cost the average Victorian household an additional $1300 every year.

These changes will punish and divide house owners and renters across the state already in a cost-of-living crisis, which the government does not have a plan to tackle. This tax increase will lead to further pressures on households, increase the costs of running a business and increase rents, impacting some of the state’s most vulnerable. This comes at a time when Victorians can least afford it. This is yet another example of the Allan Labor government punishing Victorians for Labor’s own financial mismanagement. The new commercial and industrial property tax will be based on land ownership as at 31 December following the 10th anniversary of the first transaction of the property after 1 July 2024. For the long-term owners of commercial and industrial property, this tax will impose a much higher tax impost over time than otherwise would have been paid through stamp duty. Commercial properties in Victoria are typically held for at least between 14 and 15 years, with this trend likely to continue, and Victorian investors and businesses will end up paying more.

Under the proposed reforms purchasers of commercial and industrial property paying the final stamp duty liability may elect to have a 10-year transition government loan. This loan will consist of two components – the base loan rate and a risk margin rate – which can be amended annually by the Treasurer. Those who elect to take on the 10-year government loan may be subjected to increased interest rates over the 10-year loan period, with no justification needed. This compromises certainty and confidence for investors and Victorian businesses. In the proposed amendments put forward we call for increased transparency and call on the Treasurer to annually publish the reasons for the risk margin component of a loan.

The bill also incorporates ‘qualifying use’. A property is considered to have a qualifying commercial or industrial use if it meets one of the conditions at the settlement date of a property transaction, and in addition, if the property is allocated an Australian valuation property classification code that represents commercial, industrial, extractive industries or infrastructure and utilities land.

It is also important to note the recent inquiry that the Legislative Council Economy and Infrastructure Committee conducted into land transfer duty fees. As in the minority report handed down by the Liberals and Nationals, since coming to power Labor has increased taxes on homes and land supply; in addition, Labor has failed to provide an adequate supply of new land, especially in regional Victoria. Property prices have increased significantly, which is leaving many Victorians feeling the pinch. The government’s stamp duty tax in 2014 saw an increase from $4.938 billion to $10.194 billion in 2021–‍22, which has seen the government fail to index stamp duty across the state – not just in metropolitan Melbourne but also in regional Victoria.

Since coming to power in 2014 Labor has increased taxes on homes and land supply, which is having a significant financial impact. The main report of the committee shows there has been increased tax by Labor in terms of stamp duty, land tax and increased development taxes. But it should also not be forgotten by Victorians that Labor has introduced 53 new or increased taxes since being in power. In their testimony provided to the committee the Urban Development Institute of Australia as well as the property council pointed to the high contribution of government taxes to the cost of homes and land. The failure of the Labor government to provide an adequate supply of new land, especially in regional Victoria, has resulted in significant increases in property prices for Victorians.

The proposed legislation will apply to property transactions with a contract and settlement date on or after 1 July this year. For these properties stamp duty will be paid one final time on the property when it is transacted, and the new tax will be payable 10 years after the final stamp duty payment, regardless of whether the property has transacted again. If the property is sold and transacted again, stamp duty will not apply if the property continues to be used as a commercial or industry property.

As previously mentioned, there is an option the government is providing to purchasers of commercial or industrial properties – a government-facilitated transition loan – as an alternative to self-financing the up-front stamp duty amount. However, the transitional loan will only be available to applicants that are eligible, which include Australian citizens, permanent residents or Australian businesses, the first purchaser of a commercial or industrial property when settlement occurs for contracts entered into on or after 1 July this year, or when purchasing property up to a maximum purchase price of $30 million and approved for finance by an authorised deposit-taking institution or other approved lender for the subject of property.

The bill briefing provided by the government and the department said the revenue flow from the new tax itself will flow on each year. As such, tax will start as a trickle due to the uncertainty around forecasting and the 1 per cent tax rate to come as a neutral revenue flow in 2050. Industries have expressed concerns for the short period of implementation time allocated by the government. If this legislation is passed by Parliament in the first few weeks of May, with reforms to be enforced from 1 ‍July 2024, it will give less than two months to get across the detail of a highly complex set of reforms to the commercial property market. This short implementation time, paired with the complexity of the proposed reforms, creates a prime environment for mistakes.

My electorate is home to a diverse range of successful and proud commercial and industrial businesses, and we seek to attract future investment and opportunities for the region. A stamp duty concession is currently available for commercial and industrial properties purchased in regional Victoria. The government’s proposed CIPT rate proposes to remove regional stamp duty concessions by stealth, imposing an ongoing 1 per cent tax on unimproved land for all properties. Regional Victorians are rightly concerned that the proposal will erode existing incentives to invest in regional Victoria. We should be encouraging businesses in regional Victoria to expand and set up their business platform in the best location possible in order to invest in buildings and infrastructure to cater for and service the community and the region more broadly.

The legislation proposes to set up CIPT to a flat 1 per cent of unimproved land value. The government are not proposing to index this rate to protect it from the market increases over time. There are also no assurances to protect business owners from future tax increases. I thank the lead speaker for the opposition, the member for Sandringham and Shadow Treasurer, for his contribution and effort, and I support his proposed amendments.

Nina TAYLOR (Albert Park) (12:35): I am very happy to speak on this pretty significant structural reform. It is not easy bringing about any kind of structural reform of this nature; nevertheless, it has received good support, and I will speak to that in a moment. One little caveat, just listening to some of the commentary in the chamber, that I think we need to bear in mind in any case is that global economic circumstances have changed, and we know that governments around the world are having to deal with the COVID aftermath and rising inflation. I just put that little caveat. We are going to speak to what is happening in Victoria, but we always have to speak to that global as well as local context, because it is relevant. I just wanted to acquit that to start off.

Secondly, I think it is a good idea to speak to the actual purpose of the bill. We know that we announced in the 2023–24 Victorian budget that our government is progressively abolishing stamp duty on commercial and industrial property and replacing it with a more efficient annual tax based on unimproved land value, to be called the commercial and industrial property tax. I know I am probably reiterating some points that have been made in this chamber, but it is just to keep clarity on the issue, because there were a few tangents. I get that. That is what happens in a debate in the chamber; nevertheless, I will just bring it back to the core element of what this reform is seeking to do.

The new tax system will apply to commercial and industrial property transactions with both a contract and a settlement date on or after 1 July 2024 – obviously that is a very important detail for those who will be affected by these changes – and for these properties stamp duty will be paid one final time on the property if and when it is transacted. The new annual commercial and industrial property tax will be payable 10 years after the final stamp duty payment regardless of whether that property has transacted again. If a property is sold again, stamp duty will not apply if the property continues to be used for commercial and industrial purposes.

A couple of further points to keep accuracy when it comes to the core elements of this particular structural reform: to smooth the transition to the new tax system, the government will give purchasers of commercial or industrial properties who meet the eligibility criteria as outlined in the information sheet the option of accessing a government-facilitated transition loan as an alternative to self-financing the up-front stamp duty amount. You can see there are mechanisms built in to help the Victorian community for whom this reform is relevant through the change. In this way, eligible purchasers who choose the transition loan option transition to an annual repayment from the time of purchase, freeing up capital businesses can use to invest in expanding and in employing more workers.

The commercial and industrial property tax will be set at a flat 1 per cent of the property’s unimproved land value, with no complicated rate schedules or thresholds. I hope that allays some of the concerns of some people raising the issue of how complex this change is. You can see there is a specific mechanism built in there to mitigate complexity with the transition and these changes. The reform will not apply to commercial or industrial property purchased before 1 July 2024. I suppose that makes sense, bearing in mind that 1 July 2024 is when this kicks in. Properties primarily used for residential, primary production, community services, sport or heritage or cultural purposes, as coded by the valuer-general, will not have the reform apply to them.

I just do want to reiterate one point, because there really is good support behind this particular reform. Reforming stamp duty has been recommended by numerous inquiries over recent decades, including the Henry tax review, and by the Productivity Commission and the Grattan Institute, and I think we would all agree that they are esteemed organisations and/or reviews that have taken place. There is no question in terms of evaluating the merits of these changes – we can see that they are backed in.

So what will replacing stamp duty with commercial industrial property tax actually do? What is the benefit? It will encourage businesses to expand or set up in the best location – for example, closer to their customers or where there is a growing workforce, and I think we can all agree that makes good common sense; support businesses to invest in buildings and infrastructure, also a good thing; and promote more efficient use of commercial and industrial land.

To pick up on a point that was raised in the chamber about vacant land and mechanisms that are used to balance how land is actually used, in this day and age having land idle is not in anyone’s interest, particularly over a protracted period, so it makes good sense. You can see where the incentive is from a government point of view to make sure that precious, precious land is used in the most optimal way to the betterment of all Victorians. It is not penance as such when we are looking at how various taxation elements may apply. When you are looking at land that is idle and/or vacant, it is not about penance but about incentivising and encouraging that land to be used in the best possible way. Particularly in metropolitan areas but I think also, respectfully, in regional areas as well, how land is used matters to all. I know even speaking from my own electorate, the electorate of Albert Park, that certainly members of the community get pretty angry when they see land that just sits there for years and is not actually optimised and is not actually serving the community or housing something – it is not actually offering a benefit to community. So you can see where the drivers are to make sure that land is optimally used in our community.

The other thing I do want to speak to with this structural reform is that there were some comments around the chamber I think yesterday that were trashing and talking down the economy. I just want to perhaps offer some other elements to balance some of that commentary, because I will say it was unfair, and I believe that there were some inaccuracies in some of those narratives that were put forward to the chamber. For instance, since November 2014 our economy has generated almost 800,000 new jobs, including more than 170,000 jobs in regional Victoria. I have also heard some themes about regional Victoria: what are we doing for regional Victoria? It is very fair for persons to raise the question, so let us answer those questions. I am very happy to answer those questions.

When the pandemic hit our shores in 2020, we invested to protect Victorian lives and livelihoods of course. I cannot speak for others, but certainly I was very concerned about my friends, my relatives, my mother and other people who could have been impacted by the pandemic. We had a target to create 400,000 jobs by 2025, with half of them created by 2022, and of course jobs matter because that is how you earn a living, right. We far exceeded our ambitious goal well ahead of schedule, with employment rising by more than 560,000 since September 2020. Of course we want to do even more ‍– you know, we do not rest on our laurels – creating more opportunities for Victorians to find a job and giving them the training they need for the future.

I do want to speak to something that is very close to the heart, particularly in the seat of Albert Park but not exclusively of course, and that is our wonderful creative state. Sometimes people say ‘Why do you invest in the arts? You’re just investing in paintings’ or something of the like, but of course there are many, many benefits to our brilliant creative arts industry, none the least that it brings people together and none the least that it attracts tourists and visitors who then go and spend in the cafes and bars and restaurants, and then they go and stay in the hotels. It actually brings community together as well; it is encouraging people to be together in a very positive way. There are so many benefits, but let me speak specifically, just as an example, to the NGV Triennial. I hope everyone here had the opportunity to attend. There were 1 million visitors to that. Of course they do not just come and look at and experience that wonderful event. What do they do? ‘I think I’ll have a coffee, might have a cake. I’m going to go out to dinner. I’m going to catch up with my friends. I might do some other touristy activities while I’m there. I’m going to stay in the local hotel.’ There are so many overflowing benefits – not to mention the stellar reputation of Victoria and Victorian artists. We are fantastic here in this great state.

Nicole WERNER (Warrandyte) (12:45): I rise to speak on the Commercial and Industrial Property Tax Reform Bill 2024, and I applaud those opposite for finally doing something to make it easier for businesses and corporations in this state. Stamp duty on commercial and industrial properties has long acted as a roadblock to entrepreneurial endeavours in our state, stifling the growth of new businesses and constraining established ones from expanding or relocating as they evolve. With a staggering 265,000 commercial and industrial properties dotting Victoria’s landscape, the removal of these up-front costs stands to unleash a wave of business growth and job creation and propel our economy forward.

However, while we wholeheartedly endorse the elimination of stamp duty from commercial and industrial transactions, we cannot overlook several concerns regarding the government’s proposed reform scheme. It is our duty on this side of the house to scrutinise any legislation, ensuring it achieves its intended goals without unintended consequences or undue burden on stakeholders. The shift proposed today towards a more predictable and efficient property tax system is commendable, and it aligns with what independent think tanks, policy experts and industry leaders have long advocated. This bill introduces significant changes, abolishing stamp duty on commercial and industrial properties, instituting a flat property tax rate of 1 per cent on unimproved land values and implementing a transition loan program to ease the financial burden on businesses during this shift.

These elements are designed to streamline tax administration, encourage business investment and ultimately foster job creation within Victoria. Yet one cannot ignore that these benefits, which could have been stimulating our economy earlier, are only being realised now, after years of unnecessary delay. However, the government have decided that every property sold under the new rules must pay them one last juicy stamp duty fee, one final lump sum, to pay the interest on the government’s reckless debts, which I have spoken about in this place many times before. We know they are projected to be, in 2027, $177.8 billion of debt, more than New South Wales, Queensland and Tasmania combined, this reckless debt. This is what they are trying to do, to hike up the taxes so that they can continue to pay off this debt before it switches over to land tax 10 years after the sale.

It is not enough that these changes come too late; they also must arrive too slowly. Following a decade-long transition period these same property owners will then be subject to the commercial and industrial property tax, CIPT, levied at 1 per cent of unimproved land value annually. This dual taxation approach poses a significant financial strain, particularly for investors intending to hold onto their properties for the long term. The truth of it is this: the government’s proposal for a 1 per cent commercial and industrial property tax, CIPT, rate lacks transparency and fails to provide a clear rationale for its selection. This tax scheme disproportionately burdens long-term owners of commercial and industrial properties, resulting in a significantly higher tax liability over time compared to traditional stamp duty payments. Given the prevailing trend of property ownership duration in Victoria, which typically spans 14 to 15 years, businesses and investors will ultimately incur greater costs under the CIPT regime than they would have under the previous stamp duty system.

In response to these concerns the coalition has put forward amendments urging the government to reconsider its CIPT rate, advocating instead for a more equitable and regionally sensitive approach. Under the coalition’s proposed amendments the CIPT rate would be reduced to 0.8 per cent for metropolitan properties and 0.4 per cent for regional properties, striking a balance between revenue generation and fairness for all Victorian taxpayers. This alternative proposal not only alleviates the tax burden on businesses and investors but also ensures a revenue-neutral outcome for the government, providing a simpler and fairer tax solution for Victorian families.

The government’s proposal further poses a significant threat to regional Victoria’s economic vitality. Currently a stamp duty concession exists for commercial and industrial properties purchased in regional areas, providing a crucial incentive for investment outside metropolitan regions. However, the proposed CIPT rate effectively eliminates these regional stamp duty concessions, subjecting all properties, regardless of location, to a uniform 1 per cent tax on unimproved land value. This blanket approach not only undermines the attractiveness of investing in regional Victoria but also erodes the government’s commitment to fostering economic growth beyond inner-city Melbourne. Recognising the importance of regional investment, the Victorian Liberals and Nationals advocate for a fairer and more regionally sensitive tax solution. Our proposed amendments to this bill call for a reduced CIPT rate of 0.4 per cent for commercial properties in regional Victoria, ensuring that businesses and investors in regional areas are not unfairly burdened and that investment incentives remain intact for the benefit of the entire state.

The government’s bill, with its intricate replacement of stamp duty with a protracted annual property tax, introduces unnecessary complexity into the taxation system. Industry stakeholders have voiced valid concerns regarding the potential market disruptions stemming from this reform, highlighting the government’s own admission of difficulty in anticipating its full impact. The cautionary tale of the ACT serves as a stark reminder of the risks associated with poorly implemented stamp duty reform, where a long process led to an increased taxation burden for commercial property owners. Moreover, the looming implementation of these reforms from 1 July 2024 raises fears that investors may opt to retain existing properties rather than transact in Victoria, leading to the emergence of a fragmented commercial property market with multiple tiers of taxation obligations.

Labor’s proposed reforms not only exacerbate transactional complexities but also jeopardise Victoria’s competitiveness, potentially driving commercial property investors towards alternative jurisdictions with more favourable tax environments. While the reform may incentivise short-term transactions, it neglects the needs of a sizeable portion of investors who rely on stable, long-term investments for their portfolios. So let us be real: those opposite simply cannot be trusted to reform our stamp duty system. Last month Premier Allan ruled out transitioning from stamp duty to land tax, stating that the idea ‘is not before the government through this budget process’. The government are so good at backflipping it is a tragedy that they will not be able to show off their gymnastics skills at the cancelled Commonwealth Games. We on this side of the house stand for stamp duty reforms, as the tax continues to distort the housing market, inflate prices and disproportionately hurt first home buyers who do not have existing equity.

Furthermore, if those opposite are so serious about reforming stamp duty, why don’t they rule out new property taxes in the upcoming budget? Victorians pay the highest property tax in Australia, and the property investment professionals of Australia have named Victoria as the worst state in the nation for renters due to the high stamp duty and new land taxes. In dispelling a prevalent myth, it is crucial to recognise that stamp duty’s impacts extend beyond homebuyers, resonating deeply within Victoria’s rental market. Recent figures from Homes Victoria for the December 2023 quarter underscore a concerning trend, a notable 0.8 per cent dip in rental bonds, compared to the same period in 2022. This decline marks a stark departure from the consistent 3.2 per cent annual increase witnessed over the past decade, highlighting an unprecedented shift in the rental landscape. Concurrently, PropTrack’s latest data –

Juliana Addison: On a point of order, Acting Speaker, we are speaking on the Commercial and Industrial Property Tax Reform Bill 2024, we are not talking about residential land tax. If you could direct the current member on her feet – who is currently sitting – to come back to talking about commercial and industrial tax reform, it would benefit the debate.

Sam Groth: On the point of order, Acting Speaker, it was actually the member for Preston who brought up residential land tax for the first time during this debate.

The ACTING SPEAKER (Wayne Farnham): There is no point of order.

Nicole WERNER: In the 20 seconds I have, let us hear from the Treasurer. He said scrapping stamp duty would plunge the state a further $30 billion into debt and result in funding cuts to health and education. I am concerned about those for next Tuesday. We are concerned in my community, in Warrandyte, about those. It simply does not pass the pub test.

Kat THEOPHANOUS (Northcote) (12:55): I am delighted to rise in support of this bill, which provides for some very important reforms to the taxation landscape for commercial and industrial property in Victoria, namely moving away from stamp duty towards a more efficient annual tax for these properties. This is quite a moment in history, a moment to be acknowledged, because in bringing forward this bill we are the first government in Victoria’s history with a plan to abolish stamp duty on commercial and industrial properties in this state. It is something which has been spoken about for a very long time, and indeed reforming stamp duty, as others have said, has been recommended by numerous inquiries over recent years, including the Henry tax review, the Productivity Commission and the Grattan Institute. But of course as a government of action it will be the Allan Labor government to deliver it.

On the surface of it taxation can seem like a rather dry topic to some, but one of the more appealing parts of our roles as parliamentarians is delving into policy spaces and discourses which we may not otherwise. For me taxation is one of these, and the more I learn, the more appreciation I have for the meticulous work of our outstanding Treasurer of Victoria. With the sharpest of analysis, our Treasurer must navigate the pull and thrust of markets, investments, interest rates and the potential for far-reaching impact with changes to our taxation system. In this case, with this bill we are looking at transformational reform. This is not a simple adjustment to the tax settings, it is a completely different way of taxing commercial and industrial property. The aim is to support businesses to grow and to expand, because supporting businesses to thrive is one of the absolute priorities of our government and my own work as the member for Northcote. On any given day commercial and industrial trade is buzzing across my electorate: up and down High Street, through Westgarth Village, Ruckers Hill, Northcote, Thornbury and Preston South, up Plenty Road or down in Fairfield Village, tucked into Miller and Gilbert streets, along Heidelberg Road or across the industrial warehouses of Thornbury, Preston and Alphington. Our suburbs are a hub of activity, bringing jobs, productivity and economic opportunity to not just our suburbs but the state of Victoria.

It is fair to say, though, that they have faced significant challenges over the last few years. When we all stayed home to protect each other, trade became difficult, workers struggled for income and business owners battled with the unknown. At that time I made it my mission to do everything in my power to push for more and better supports for our local businesses. In this place I stood up to ensure that as many businesses as possible were made eligible for our relief grants, including the numerous brewpubs like Moon Dog World, 3 Ravens and Tallboy & Moose in the inner north, which originally were excluded, and bespoke support for our many great music venues that were under immense stress. We hosted business round tables with multiple ministers so our local traders could relay directly to decision-makers the pressures they were facing, and at the time we spoke a lot about how we would revive and revitalise our business precincts and help them to bounce back after such a tough period. Out of these early conversations were born two very important local festivals, The Eighty-Six and Northcote Rise, both one-of-a-kind festivals with a unique inner-north flavour, bringing tens of thousands of visitors to our suburbs, creating a groundswell of economic activity and raising the profile of Northcote. The Eighty-Six music festival alone drew an audience of 29,000 and delivered $4.9 million directly into our economy, resulting in a multiplied impact of $14.9 million. Over 600 ‍musicians and DJs were engaged, over 65 music venues and over 200 small businesses – an utter triumph for our creative and small business ecosystem. I mention this because it goes to the priority and the emphasis we put as a government on supporting and investing in our state’s future and our economy. And it is working.

Sitting suspended 1:00 pm until 2:02 pm.

Business interrupted under standing orders.