Victorian Treasury fears Melbourne property price correction

Victorian Treasurer budget papers warned that the most likely risk to predicted Victorian tax revenue was posed by ­reduced stamp duty income if ­investor sentiment wanes.

Treasury figures show stamp duty revenue from Victoria's property market rose by 27% in 2013-14.

Property taxes are forecast to contribute $7.7 billion to the state's total $18.2 billion tax revenue in the current financial year.

The higher income from property offsets recent weaker revenue from gambling taxes.

"As the upward momentum of the current cycle builds, so does the likelihood of a correction, as has been the case in past property cycles," Treasury warned.

The strong property has also boosted land taxes forecast to be around $1.8 billion next financial year.

The new 3% land transfer duty surcharge for non-resident Australians is tipped to add a $39.5 million in 2015-16.

Treasurer Tim Pallas said the government was still working through how its new taxes for foreign buyers would be applied. 

A 0.5% land tax surcharge for absentee owners of Victorian property will also be imposed next year, expected to raise $53 million over four years.

“Let’s be frank — the state of Victoria has a very high dependence on the performance of the property market through both land tax and stamp duty,” Pallas said.

“That that is a risk to the budget is, I think, an undeniable fact.”