Introduction
During his tenure as the 43rd Premier of Victoria, Jeff Kennett spearheaded a series of radical reforms that reshaped the state’s political and economic landscape. Among the most significant of these were the sweeping amalgamations of local councils and the introduction of a cap on council rate increases. At the time, these measures were seen as a necessary, if painful, step towards greater efficiency and fiscal responsibility. However, a crucial oversight in these reforms has created a ticking time bomb for Victorian landowners: the failure to apply a similar cap to state land tax. Today, we are witnessing the consequences of this omission, with a growing disconnect between capped council rates and skyrocketing land tax bills, leaving property owners to bear the brunt of an uncapped and increasingly burdensome tax.
The Kennett Reforms: A Double-Edged Sword
In 1994, the Kennett government embarked on an ambitious and controversial program of local government reform. In a bold move, 209 of Victoria’s 210 municipalities were dissolved and amalgamated into 78 new, larger councils. This dramatic consolidation, which saw 1,600 elected councillors dismissed and replaced by government-appointed commissioners, was justified on the grounds of efficiency and cost-effectiveness. In tandem with these amalgamations, the government introduced a cap on council rate increases, a measure designed to protect ratepayers from exorbitant hikes and force councils to operate within their means. At the time, council rates and state land tax were broadly comparable, and the rate cap was a welcome relief for many property owners.
However, the decision to cap council rates without applying a similar constraint to state land tax has, in retrospect, proven to be a significant misstep. While councils have been forced to operate within a tight fiscal framework, the state government has been free to increase land tax revenue without any such limitations. This has created a fundamental imbalance in the state’s property tax system, with land tax evolving from a relatively benign levy into a major financial burden for Victorian landowners.
The Great Disconnect: Land Tax Spirals Out of Control
The divergence between council rates and land tax has become increasingly stark. While the council rate cap has hovered around 2.75-3%, land tax revenue has surged. Between 2020 and 2024, the state government’s land tax take ballooned from $3.5 billion to $5.9 billion – a 68% increase in just four years.
The 2024 land tax changes have been a major driver of this increase. The tax-free threshold was slashed from $250,000 to just $50,000, bringing vast numbers of previously exempt properties into the land tax net. New flat fees were introduced for lower-value properties, and the top marginal rate was increased. The result has been a perfect storm for property owners facing massive and unpredictable land tax bills.
Real-World Consequences: A System in Crisis
The human cost of this uncapped tax is increasingly apparent. Landowners are facing valuation jumps of over 134%, leading to crippling land tax increases. One business owner saw their land tax bill skyrocket by over 300% in a single year, from $24,000 to $109,000. These incidents reflect a system described as “robo-debt for land tax,” designed to “gouge landowners.”
The problem has been exacerbated by centralizing property valuations under the Victorian Valuer-General in 2023. Previously, local councils with intimate knowledge of local markets handled valuations. Now, with the Valuer-General using algorithms, there are widespread accusations of overvaluation. While council valuations were typically conservative, the new system is “frequently in the very optimistic range and rarely favour the landowner.”
Conclusion: A Call for Reform
The current land tax crisis in Victoria is a direct legacy of the Kennett government’s failure to apply the same fiscal discipline to the state government as it did to local councils. The decision to cap council rates without a corresponding cap on land tax has created a two-tiered system, where one form of property tax is constrained while the other grows unchecked. This has created a significant financial burden for property owners and undermined the original intent of the Kennett reforms.
It is time for a comprehensive review of Victoria’s land tax system. The introduction of a cap on land tax increases, similar to council rates, would be a crucial first step towards creating a more equitable and predictable property tax regime. Without such reform, the disconnect between council rates and land tax will continue to grow, leaving Victorian landowners to pay the price for a historical oversight.
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