Property Market Slump Cuts $2.4bn Hole in Victorian Budget

The Victorian government budget has taken a $2.4 billion hit in the lead up to the election, with property market uncertainty affecting the Andrews government bottom line.

The Victorian economy continues to outperform the rest of the nation, as stronger than expected consumer spending and business investment offset declines land transfer duty revenue.

The figures were published in a pre-election budget update released by the Department of Treasury and Finance on Monday.

Stamp duty on homes accounts for 30 per cent of Victoria’s revenue.

Treasury warned that moderation in the residential property market “could prove deeper” than currently factored into the forecast.

“Particularly if prompted by tighter access to credit, rising borrowing costs or an economic downturn.

Related: NSW Announces Biggest Stamp Duty Reform in 30 Years

Property-related taxed ‘highly volatile’

Despite cutting a $2.4 billion hole in government coffers, treasury revealed that land tax revenue has been revised up by $909 million over the next four years.

Treasurer Tim Pallas said on Monday that the government has taken a “conservative” approach to softening in the property market.

“The worst thing any government can do when there is uncertainty is to pull the market down or wind back investment,” he said.

Treasury said that the property-based tax revenue sources are “subject to unique risks and have historically been volatile”.

“If property market sentiment were to weaken faster than anticipated or is more prolonged, or mortgage interest rates rose more quickly than currently expected, revenue from property-based taxes may be weaker than forecast.”

Victoria's Housing Industry Association executive director Fiona Nield agrees.

“Stamp duty is notoriously cyclical, and the state’s fiscal position is heavily exposed to any downturn in stamp duty receipts,” Nield said.

“While the decline in overall stamp duty receipts will not reduce the cost impost on individual buyers, it will certainly impact on the Victorian government spending and activity.”