2021-22 Victorian State Budget

25 May 2021

In brief

The 2021-22 Victorian State Budget was delivered on 20 May 2021 by Treasurer Tim Pallas.

As with the previous Victorian Budget, the key feature of the 2021-22 Budget is on recovery from the economic impact of COVID-19. There is a focus on increasing jobs, affordable housing and investing in infrastructure in the transport, health and education sectors. There is also a strong focus on increasing mental health services in the community.

However, it is apparent this does come at a cost. The cost is manifested in another key feature of the Budget, tax increases and new taxes and levies. The top stamp duty rate increases to 6.5 per cent (from 5.5 per cent) and land tax rates increase for certain properties. There is a new tax on windfall gains from property rezoning and a payroll tax levy to fund mental health initiatives.

The State Taxation and Mental Health Acts Amendment Bill 2021 (Vic) (Bill) was tabled in Parliament on the same day to coincide with the release of the Budget. The Bill reflects the announced tax changes (other than the “windfall gains tax”) but also makes other changes to state taxes. 

In detail

Overview of key economic indicators

Following the economic impact of COVID-19, Victoria’s economy is showing promising signs of recovery. In contrast to the forecasts in the last Budget, the Government is expecting Victoria’s economy to grow by 6.5 per cent in 2021-22.

Taxation revenue is expected to grow by an annual average rate of 6.9 per cent a year over the forward estimates reflecting an improved outlook, and what the Government refers to as “targeted revenue initiatives”. Total expenditure is expected to reach $86.2 billion in 2021‑22. Net debt is expected to reach $102.1 billion this financial year and grow to $156.3 billion by the end of the forward estimates. Expected levels of debt are now lower in each year of the forward estimates than was forecast in the 2020‑21 Budget.

Whilst reform of state taxes has, in more recent times, been the focus for some States and Territories, the Treasurer considered this topic to be “off the agenda” for the time being while Victoria’s budgetary position “settles in”.

Mental Health Reform

  • The Government aims to invest $3.8 billion to transform Victoria’s mental health system through a number of initiatives, including:
    • $954 million to deliver community-based care;
    •  $370 million to improve access to mental health beds and better acute care;
    • $264 million for new local mental health services for adults;
    • $196 million to support a dedicated mental health system for infants, children and families;
    • $173 million for suicide prevention; and
    •  $116 million to support the mental health and wellbeing of Aboriginal Victorians.

Big Housing Build package

  •  In an extension of the the “Big Housing Build” package introduced in the 2020-21 Budget, the Government intends to invest in the following initiatives to continue making housing more accessible and affordable:
    • $194 million for services that prevent homelessness, those who need help in the rental market, young people leaving care and vulnerable Victorians with complex needs;
    • $26 million to better target early intervention for rough sleepers; and
    • $9.1 million to build and operate a new Aboriginal refuge in Horsham to support victim survivors of family violence.


  •  The Government will continue to focus on infrastructure across various sectors, including:
    •  $3.7 billion for hospital services;
    •  $3.2 billion for public transport services and infrastructure, including $986 million to build 25 new X'Trapolis 2.0 trains and supporting infrastructure; and
    •  $1.6 billion for school infrastructure.

Targeted social measures 

  • The Budget includes funding in targeted areas such as $1.2 billion to support the expansion of the child protection workforce and help for vulnerable Victorian children and families. 
  • The Government will spend $1.3 billion to continue the state's public health response to the pandemic and $50 million to establish the capability to manufacture mRNA vaccines in Victoria.
  •  $788 million has been allocated to reduce the impact of bushfires on Victorian communities. 

Key tax measures announced 

Stamp duty 

  • For contracts entered into from 1 July 2021, a new land transfer duty threshold for “high-value” property transactions (those with a dutiable value over $2 million) will be introduced. The land transfer duty payable will be increased to $110,000 plus 6.5% of dutiable value in excess of $2 million. Relevant arrangements entered into before this date are expected to be grandfathered. This change has broad application. It is not limited to direct transfers of land (for example, it would apply to a broad range of transactions, including acquisitions in landholders and dealings in economic entitlements) and applies to all types of land.
  • The off-the-plan concession eligibility threshold for land transfer duty will increase to $1 million for home buyers (for contracts entered into from 1 July 2021 to 30 June 2023). Consistent with the existing eligibility requirements, the property must be the principal place of residence for at least one of the purchasers.
  • From 21 May 2021 to 30 June 2022, a concession of 100 per cent of land transfer duty payable will be available for contracts entered into to purchase new residential property in the City of Melbourne with a dutiable value of up to $1 million when the property has been unsold for 12 months or more since completion. A 50 per cent concession will be available for contracts entered into from 1 July 2021 to 30 June 2022 for purchases of new residential property in the City of Melbourne where the 100 per cent concession is not available. This concession does not apply to any foreign purchaser additional duty.
  • The Bill introduces measures dealing with shared equity arrangements where the State contributes to the purchase of a home within the meaning of the First Home Owner Grant and Home Buyer Schemes Act 2000 (Vic) or land on which a home will be built and takes an equitable interest in the home or land. A person who enters into such arrangements is to be assessed for duty on the acquisition as if the person was the sole purchaser.  However, no duty should subsequently arise resulting from the purchaser “buying back” the State’s interest.    

Windfall gains tax

  • From 1 July 2022, a new windfall gains tax of up to 50 per cent associated with planning decisions to rezone land will be applied to the total value uplift for windfalls above $500,000, with the tax phasing in from $100,000. The tax is payable on rezonings across Victoria, except on rezonings to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas and re-zonings to public land zones.

Land tax

  • From 1 January 2022, a new land tax rate will be introduced. The rate will increase by:
    • 0.25 percentage points to 1.55 per cent for taxable landholdings exceeding $1.8 million; and
    •  0.3 percentage points to 2.55 per cent for taxable landholdings exceeding $3 million. 
  • From 1 January 2022, the land tax-free threshold will increase from $250,000 to $300,000. However, no change will be made to the tax-free threshold for properties held through a trust.
  • From 1 January 2022, the land tax concession reserved for charities, clubs and associations will no longer apply to private gender-exclusive clubs.
  •  From 1 January 2022, the vacant residential land tax exemption for new developments will be extended to apply for up to two years.
  • The Bill provides that the land tax legislation applies to partnerships. Partners in a partnership are to be taken to have a beneficial interest in partnership land. These measures are in response to recent case law dealing with the interests of partners in partnership property and follows similar amendments previously made to Victoria’s stamp duty legislation.       

Payroll tax 

  •  From 1 July 2021, the payroll tax-free threshold will increase from $650,000 to $700,000, and the regional employer rate of payroll tax will reduce from 2.02 per cent to 1.2125 per cent.
  • From 1 July 2021, the threshold for paying annual payroll tax will increase from $40,000 to $100,000.

Mental health and wellbeing surcharge

  • The Government will implement the recommendations of the Royal Commission into Victoria’s Mental Health System. 
  •  A new revenue mechanism will be introduced to provide funding for mental health services. From 1 January 2022, the Mental Health and Wellbeing Levy will be implemented as a payroll tax surcharge on wages paid in Victoria at 0.5 per cent by businesses with national payrolls over $10 million a year and an additional 0.5 per cent for businesses with national payrolls above $100 million. 
  • Once the $10 million annual threshold of Australian taxable wages has been exceeded, the 0.5 per cent surcharge will apply proportionally to Victorian taxable wages. The additional 0.5 per cent will only apply to the proportional taxable wages above $100 million.
  • Existing payroll tax exemptions for private schools, hospitals, charities, local councils, and wages paid for parental and volunteer leave will apply for the levy.

The takeaway

The Budget introduces some important measures to support the recovery of the Victorian economy, mental health reform and targeted social initiatives. However, this does come at a cost. That cost is tax increases and some new taxes and levies. Victoria has now moved into unchartered territory of having one of the highest stamp duty and land tax rates in Australia. Yet to be tested is what impact that cost will have on future economic activity.  

Contact us

Barry Diamond

Partner, State Taxes, PwC Australia

Tel: +61 (3) 8603 1118

Anne Bailey

Partner, Workforce, PwC Australia

Tel: +61 407 204 193

Greg Kent

Partner, PwC Australia

Tel: +61 412 957 101

Rachael Cullen

Partner, Tax, PwC Australia

Tel: +61 409 470 495