Victoria's property taxes have been the state budget's quiet workhorse for years. Now the housing downturn is biting into them. The state's pre-election fiscal update has cut its forecasts for stamp duty and land tax by about $5 billion over four years. That matters for every buyer, seller and landlord, because it narrows the room for the tax relief both major parties are promising before the 28 November vote.

What the fiscal update shows

The pre-election update, released on 30 October, trimmed land transfer duty and land tax forecasts, reducing Revenue by roughly $5 billion across the forward estimates. That works out to about $1.3 billion a year.

The downgrades were "primarily driven by downgrades to land transfer duty and land tax".

The state still expects to collect $9.2 billion from land transfer duty and $7.6 billion from property-related taxes this financial year. Those remain very large numbers, but they are smaller than the Treasury had pencilled in only months ago.

The official update document contains the full tables.

Why falling prices hit state coffers so fast

Stamp duty is charged on the price of a property when it changes hands. When prices fall and fewer homes sell, the state loses on both counts at once.

Both are happening. Cotality's October index, published on 2 November, showed combined Capital city values down 8.1 per cent over seven months. Cotality says that is the fastest pace in its 40 years of data. Annual sales volumes are down 30 per cent in Sydney and 29 per cent in Brisbane, a sign the slowdown is national.

Melbourne values are now 7.3 per cent below their level five years ago, Cotality says, with the city's median dwelling value at $773,027.

The Reserve Bank added to the pressure on Melbourne Cup Day. It lifted the cash rate 25 basis points to 4.85 per cent, noting in its statement that "housing prices have fallen significantly and the Unemployment rate has risen". The board also flagged "uncertainties about the extent and economic effects of the downturn in the housing market."

Forecasts suggest the slide may not be over. Commonwealth Bank expects Melbourne prices to fall about 13 per cent peak to trough. Bank forecasts are projections, not certainties, and they have already moved this year.

Construction is also softening nationally. The ABS reported private house approvals fell 5.3 per cent in September, although Victoria still recorded 2,895, the most of any state.

Land tax responds more slowly, because it is based on land valuations rather than sale prices. But lower valuations eventually flow through to lower bills and lower collections.

Hypothetical example: how price and Volume combine

Hypothetical example: imagine a small region where 100 homes sell in a year, each attracting an average of $40,000 in duty. The state collects $4 million.

Now suppose prices fall 10 per cent and sales volumes fall 20 per cent. If duty moved in line with price, the average bill would drop to $36,000 across 80 sales, giving $2.88 million.

That is a 28 per cent fall in revenue from a 10 per cent price fall. In practice the drop can be steeper, because duty rates are progressive and lower-priced sales fall into lower brackets. The numbers are illustrative only and do not reflect actual Victorian duty rates.

The Treasurer's explanation and the Debt picture

Treasurer Colin Brooks attributed the national price decline to inflation, interest rates and the federal budget's property tax changes.

"This is something that's impacting the whole country, driven by inflation, interest rates," he said.

The federal changes he referred to are now law. Under the Tax Reform No. 1 Act 2026, the 50 per cent CGT discount will be replaced by cost-base indexation plus a 30 per cent minimum tax for gains accruing from 1 July 2027. Negative gearing will be limited to new builds for properties bought after 7:30pm AEST on 12 May 2026, also from 1 July 2027. Existing holdings are grandfathered.

How much of the downturn is due to those changes, and how much to rates, is contested. Treasurer Jim Chalmers has defended Treasury's house price assumptions in Canberra, while the Coalition argues the changes have damaged confidence.

The revenue hit lands on a Balance Sheet that is already stretched. Net debt is forecast to reach $197 billion in 2029-30.

Interest costs are put at $8.9 billion this year, or about $24.3 million a day, rising to $11.9 billion. The average surplus has been cut to about $300 million a year, down from $1 billion in the May budget.

That leaves little buffer if property markets weaken further than the update assumes.

What it means for the election promises

Both major parties have pledged to return the land tax threshold to $300,000, after it was cut to $50,000 in 2023. Labor has costed its plan at $230 million over five years. The Coalition's version has not had a reported costing.

On stamp duty, Labor proposes no major change. The Coalition would scrap duty for eligible first-home buyers up to $1 million, and the Greens would abolish it for owner-occupiers up to $1.1 million.

Any promise that reduces property tax revenue now has to be weighed against a base that is already shrinking. That does not make the promises unaffordable, but it sharpens questions about funding and timing.

For households, nothing changes until legislation passes. Current duty and land tax settings continue to apply in the meantime.

What to watch

  • 3 November: the Victorian government entered caretaker mode, limiting new major decisions until after the election.
  • 28 November: Victorians vote. The winning party's fiscal strategy will determine whether property tax promises are implemented as announced.
  • 25 November: the next monthly CPI release, which will shape expectations for further rate moves.
  • December: the federal mid-year budget update, which may update national housing assumptions.
  • Monthly price indexes: further falls would put more pressure on duty forecasts for 2026-27 and beyond.