Economic Disadvantage Report
Part 1: Taxation & Charges
FULL REPORT RELEASED: March 28, 2022
Businesses, landowners and residents on the Mornington Peninsula face a suite of specific taxes and charges due to the municipality’s metropolitan designation. These payments are higher than those faced in regional Victoria and represent a key area of economic disadvantage for the Mornington Peninsula.
Our research highlights the significant impact the metropolitan payroll tax rate has on Mornington Peninsula businesses and the improved outcomes that could occur from a regional designation.
It is estimated that the Peninsula's metropolitan designation is costing local businesses approximately $150 million in payroll tax per annum.
Businesses on the Peninsula pay between $196 - $202 million in payroll tax, which would reduce to $49 - $51 million under a regional designation.
Under Victorian Government legislation, the Mornington Peninsula is classified as a metropolitan local government area. Therefore, businesses on the Peninsula are not eligible for the lower regional payroll tax rate.
Our research indicates that the Mornington Peninsula's overall economic comparison and employment profile aligns more closely to regional Victoria than metropolitan Melbourne. In addition, even regional Geelong has almost double the total number of jobs compared to the Peninsula, with their total economic output also more than double our own.
Payroll tax is the tax an employer pays to the state government on the wages paid to its employees if the total wages paid exceeds a threshold. Since 2017, a lower payroll tax rate has applied to taxable wages paid by regional employers to their regional employees compared with their metropolitan counterparts. The payroll tax rate applied to metropolitan businesses in 2021-22 is 4.85%, while regional Victorian businesses pay 1.21%. The annual tax-free threshold for 2021-22 is $700,000, with a monthly threshold of $58,333.
The metropolitan classification for the Peninsula has a significant cost to our existing business base with the potential to impact a range of economic outcomes, including employment and wages. For example, the Department of Treasury and Finance Victoria researched to estimate the impact of the reduced regional payroll tax rate on business behaviours in 2021. The research demonstrated that businesses that received the regional payroll tax rate increased total wages faster than businesses that were not eligible.
If a regional payroll tax rate were applied to the Peninsula, it would enable Peninsula employers to better compete for staff with their regional counterparts, who pay a quarter of the payroll tax rate as employers on the Peninsula. It would also increase the capacity for employers to offer higher wages during a period of wide-ranging workforce shortages.
In addition, the higher metropolitan rate of payroll tax the Peninsula is subject to is likely to influence businesses considering a move to the Peninsula, limiting economic growth on the Peninsula. For example, a business weighing up a Mornington Peninsula versus Greater Geelong location would factor in the payroll tax differential in its ultimate decision, limiting business growth and employment opportunities on the Mornington Peninsula.
These research outcomes highlight the numerous channels through which the higher payroll tax rate is likely to be impacting our local businesses and residents. Applying a regional rate of payroll tax to Mornington Peninsula employers would make the Peninsula a more attractive place for businesses to invest, grow and employ locally, which would, in turn, open up more local job opportunities and drive economic development.
As the Peninsula recovers from the economic of the pandemic restrictions, it is time to provide local businesses with the best possible policy and funding settings to recover and invest. We think that should include reconsidering the rate of payroll tax Peninsula businesses pay to drive local jobs and opportunities.
Other Taxes & Charges
There are also potential flow-on effects of the metropolitan land and planning taxes restricting business growth and limiting investment and development on the Mornington Peninsula.
Firstly, consider that the Mornington Peninsula's population density sits between Greater Melbourne and Regional Victoria. And
historical data indicates that the Peninsula has near-identical population and dwelling growth to regional Victoria.
However, the Peninsula also has the lowest forecasted population and dwelling growth of regional Victoria and Greater Melbourne,
as shown below.
|Forecast Population AAGR (2021-2036)
|Forecast Dwelling AAGR (2021-2036)
With these characteristics, we don't think it's fair that Mornington Peninsula business owners and residents are burdened with taxes that are not applied to regional municipalities, undermining our investment and economic development. Below are three examples highlighting the difference between metropolitan Melbourne and regional Victorian tax requirements.
Transfer Duty (i.e., stamp duty)
When purchasing a property, a land transfer duty is paid on the transfer of the land, dependent on the property's value, its use, and eligibility for any exemptions or concessions. Since the beginning of 2021, commercial and industrial property across regional Victoria have been eligible to receive a 50% discount.
As a metropolitan area under this taxation policy, Mornington Peninsula landowners have paid $236.2 million in land transfer taxes in 2018-19 (including residential land purchases). However, when stamp duty concessions for regional Victoria came into effect in 2019, the Mornington Peninsula missed out again.
Consider this, purchasing a $1 million commercial property in Mornington Peninsula faces a stamp duty fee of $55,000. In comparison, an identical purchase scenario in Geelong would incur a stamp duty fee of only $27,500.
Metropolitan Planning Levy
Another tax, the Metropolitan Planning Levy (MPL), is applied to a planning permit to develop land in metropolitan Melbourne, where the estimated development cost is more than the levy threshold. For example, the estimated cost of a $2,357,000 Mornington Peninsula development would incur a $3,064 MPL permit application not required by our regional counterparts.
Cladding Rectification Levy
Lastly, in July 2019, the State Government introduced a building permit levy to address combustible cladding issues to support a grants
program for the rectification works for high-risk buildings. The levy does not apply to building permits in regional Victoria but
instead applies to all metropolitan construction of classes 2 to 8 buildings with a cost of $800,000 or more.
As of April 2021, Victoria Building Authority data shows the Mornington Peninsula has just 12 buildings with cladding issues, compared to 20 in Greater Geelong. However, Geelong is not required to contribute to the program due to their regional classification.
The Mornington Peninsula's metropolitan status has significant financial implications from a taxation and charges perspective.
The additional fees incurred by the local business base due to the current classification negatively impacts the municipality's
economic outcomes and job creation.
These additional fees are likely to have two key impact channels:
Existing business land and development fees (i.e., a local business expanding) will be directly impacted by the higher metropolitan taxes, influencing existing business activity (e.g., reduction in business revenue and restricting wage increases, employment, equipment, or other investment opportunities).
Future investors or businesses looking to establish, shift or expand operations to the Mornington Peninsula or comparable areas with a regional designation and favourable taxation conditions (e.g., Geelong) are deterred by the additional metropolitan taxes.
These examples highlight the current Victorian Government policy settings' negative impact on Mornington Peninsula's local economy. These factors combine to limit business growth on the Peninsula and the associated economic activity and benefits this brings to the local community. Therefore, from a taxation and charges perspective, a regional designation could provide a net benefit to Mornington Peninsula businesses and residents.
What taxation and charges issues do you, your community, your business or your customers face on the Peninsula?
How can we help advocate for change?
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Economic Disadvantage Report to learn
This research was conducted by Urban Enterprise as commissioned by the Committee for Mornington Peninsula in partnership with Australian Unity.
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THE COMMITTEE FOR MORNINGTON PENINSULA WILL:
- Continue to advocate to government at all levels to adequately support Mornington Peninsula businesses in the COVID recovery;
- Advocate to state and federal governments for further investment into the Mornington Peninsula to reduce the current disparity in public investment between the Mornington Peninsula and neighbouring municipalities;
- Commission and publicise robust research into the potential policy and funding advantages and disadvantages of a regional vs. metropolitan designation for the Mornington Peninsula, to best inform further advocacy objectives;
- Advocate to elected representatives on all sides of politics for a more suitable designation for the Mornington Peninsula than the current metropolitan model or for commensurate government investment under the current model; and
Maintain a record of favourable policy decisions and funding announcements that benefit comparable ‘regional’ communities and were not made
available to the Mornington Peninsula.