'How is this legal?': Victorian land tax hike pushes bill up 450 per cent

Nearly all who spoke to ACM said they couldn't absorb the extra cost and would have to either sell their property or raise rents.

Victorian Treasurer Tim Pallas described the increases as "marginal" and said they would have no effect on rental prices.

Up to 60,000 property owners have also erroneously been issued tax bills they're not liable for, a figure the Commissioner of State Revenue said he was "quite proud of".

Retired truck driver Russell McConachie owns several small properties in Winchelsea and Colac, including three one-bedroom units, one of which he lives in.

In 2021 his land tax bill was $1375. In 2022 it dropped to $1300, then in 2023 it tripled to $3675, and in 2024 it has spiked again to $6045.

It means his land tax has increased nearly five-fold in two years.

"With that much money I don't know how they're allowed to do that," Mr McConachie said.

"How is it legal?"

Mr McConachie said he hoped to be able to hold on to the properties, but he didn't see how it was possible without raising the rents.

"To cover the increase you're looking at $100 a week, so I would have to look at $50," he said.

"You hear the government carrying on about accommodation and rents and then they do this s**t.

"How do they expect people to pay that land tax, most haven't got that kind of money."

The land tax hike was a small part of the COVID repayment plan the government unveiled in the 2023 budget.

Treasurer Tim Pallas targeted landowners to raise the revenue to pay off billions in debt racked up during the pandemic.

The changes lowered the tax-free threshold for general land tax rates from $300,000 to $50,000.

Landholdings valued between $50,000 and $100,000 attracted a fixed $500 charge each year and those between $100,000 and $300,000 incurred a $975 charge.

Landholdings worth more than that were hit with increasing flat fees as well as a percentage of the land value.

The Treasurer said the tax would raise nearly $5 billion.

The State Revenue Office has sent out more than 870,000 land tax bills in the past couple of months, triggering a flood of complaints to local MPs about the "unprecedented" hike.

Opposition MPs raised the issue with Mr Pallas at the Public Accounts and Estimates Committee (PAEC) in late May.

Gippsland South MP Danny O'Brien gave the example of a couple who were both retired teachers who rented out several one-bedroom units.

"[They're] not wealthy people," Mr O'Brien said.

"They rent to single mothers and pensioners - small 1-bedroom units, mostly. Their land tax bill in the last two years has gone from $385 to $2775.

"How do you possibly think that they are not going to have to pass on that 620 per cent increase in their land tax bill in two years to their tenants?"

Western Victoria MP Bev McArthur gave similar examples where one constituent's bill rose by $5500 since 2023 and another whose assessment went from $1923 last year to $6450 in 2024.

Mr Pallas said the increases wouldn't hurt renters.

"Rents are driven by the laws of supply and demand, and our land tax settings just do not affect that balance," he said.

"Brendan Coates made the point, from the Grattan Institute, when he said most of it gets absorbed by the landowner, the impact on rents is going to be somewhere between zero and a number so small you will barely see it."

The Treasurer also said the rises weren't particularly significant.

"It is a relatively marginal input in terms of the overall management of the asset," he said.

Mr McConachie said he was astounded at Mr Pallas' comments.

"How can he even say something like that?" he said.

"These costs aren't marginal and you have to remember all the other costs of managing the asset have also gone up.

"It costs more for real estate management, all the rates have gone up, insurance has doubled with all the storms and floods and if you've got a loan on that investment property it's pretty much unfeasible."

Many landlords have already made the decision to sell their rental properties in the face of rising costs.

Some have argued this opens the door to first-home buyers, but opposition housing spokesperson Richard Riordan said it wasn't so simple.

"The people providing the most affordable and long-term accommodation in the rental market are generally not wealthy people," he said.

Mr Riordan argued the tax hike would hit that group the hardest and unintentionally hurt the most vulnerable group of renters.

"The government simply haven't recognised who is providing long-term security of tenure in Victoria, because those are the people who are deserting the market," he said.

Mr McConachie said he thought the government was just out to raise as much revenue as possible.

"I reckon they're trying to force as many people as possible to sell," he said.

"When they force this they're forcing all the people on the waterline to sell, so they get the land tax and the stamp duty, so the government will net an absolute fortune."

But tens of thousands of property owners have also been sent bills for tax they shouldn't have to pay.

There are a range of exceptions to land tax, including when the land is your principal place residence, used for primary production, or charitable, sporting or cultural purposes.

The PAEC hearings revealed the State Revenue Office had sent about 60,000 assessments that had been questioned by the landholder.

Commissioner of State Revenue Paul Broderick said any mistakes weren't a result of sloppiness.

"We have a group of staff who get involved in the checking of them before they go out to make sure they are as accurate as we possibly can get them," Mr Broderick said.

"We have people actually physically review each land tax assessment... I am talking about the first-time liabilities. They are reviewed. There were around about 300,000 of those this year, so they have all been reviewed by the staff in Ballarat.

"Of the new liabilities we have less than a 10 per cent amendment rate, which is actually very low. We are quite proud of that rate."

Mr Riordan said 60,000 mistakes wasn't good enough.

"One fellow got a bill for a block of land he sold 35 years ago," Mr Riordan said.

He said every ratepayer needed to go through their rates notice with a fine toothed comb.

"In particular, you need to look at the land value to see whether it's gone up, because that's the figure they use to calculate the land tax," he said.

Mr Riordan said in his south-west Victorian electorate of Polwarth many ratepayers were seeing their land value skyrocket while the capital improved value stayed the same or even dropped.

"You have to catch this and question it when you get your rates," he said.

"By the time you get your land tax bill it's too late to object to the land valuation."