The recent budget is one of the most investor-friendly in our history. If you’re a property investor, the National government has done a good job. However, there is one government that is definitely not on our side.
The Victorian government has attempted to hijack the property boom with new taxes. They have decided to try and squeeze more money from investors. Now, Victoria already has the highest property tax rates all over Australia. South Australia is a close second.
The Victorian government has now announced a new gains tax, a premium stamp duty, and a land tax hike to help increase the state’s revenue base from the economic shock caused by the pandemic.
Let’s say you buy a property, and you make money on it really quickly. They will take it off you just as quickly thanks to their new rules.
Land tax is going up by 19% for properties worth more than $1.8 Million. That’s a huge increase. And if you live in Melbourne, you know getting a property of $2 million is easy.
On 1st July 2022, they are going to take back an estimated $40 million a year from property owners. As a result, many Victorian property owners are going to lose money on their investments.
Property already contributes about 40% of the state’s revenue, and they want to smack investors even more. This shows a fundamental misunderstanding of the contribution that real estate makes in the current economy—which is just crazy.
Ten Men & The Beer Bill
Let me tell you a quick parable to illustrate what the Victorian government’s new land tax rules might mean for the state in the future.
Suppose that every day, ten men go out for beer. The bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this…
- The first four men (the poorest) would pay nothing
- The fifth would pay $1
- The sixth would pay $3
- The seventh would pay $7
- The eighth would pay $12
- The ninth would pay $18
- The tenth man (the richest) would pay $59
The ten men drank in the bar every day and seemed quite happy with the arrangement. Until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
- And so the fifth man, like the first four, now paid nothing (100% saving).
- The sixth now paid $2 instead of $3 (33% saving).
- The seventh now paid $5 instead of $7 (28% saving).
- The eighth now paid $9 instead of $12 (25% saving).
- The ninth now paid $14 instead of $18 (22% saving).
- The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man, “but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
Eventually, the nine men got so mad that they surrounded the tenth man and beat him up.
The next night the tenth man didn’t show up for drinks. So the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
And that’s the whole point. You can’t tax a nation to prosperity.
How To Protect Yourself From Tax Hikes
The poor and middle class need to learn what the wealthy do. Because the wealthy have a different mindset and system for approaching wealth creation that’s vastly different to what the lower economic classes are taught.
And in property you’ve got to know what you are doing. And that’s why we have a 14 day challenge to help people who want to create their own Blueprint for investing in property.
Over 14 days, participants hear from the experts and learn from me how to develop your plan, fix your credit, look good for the banks, organise your tax structure, choose the right property, and much more.
The Challenge helps you get educated and create an informed plan for getting your first, second, third and beyond cash flow positive investment properties.
It’s a great way to get your ducks in a row and start on your path to becoming a property investor in a safe and steady way.
At the moment I’m offering entry to the challenge with no payment upfront, so there’s basically no risk involved.
If you’re interested in finding out more, go visit this link to check it out.