Victoria's peak rural councils lobby group says the proposed windfall gains tax could snuff out population growth, outside Melbourne.
Rural Councils Victoria chair Mary-Anne Brown said the proposed tax, designed to tackle a specific Melbourne problem, could have unintended negative consequences for rural cities and towns.
The new windfall gains tax was announced as part of the Victorian Budget.
Under the proposed law, he total value uplift from a rezoning decision will be taxed at 50 per cent for windfalls above $500,000, with the tax phasing in from $100,000.
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Cr Brown said the WGT was designed to tackle a specific Melbourne problem, but would have unintended negative consequences in rural areas.
"Unlike in the city where massive firms are involved, development in rural towns is mainly undertaken on a small scale by families who have owned the land for a long time," Cr Brown said.
"They often don't have experience in property development and might not have the money to pay this new tax.
"This means that they will simply not develop the land."
She said the RCV and the state government were keen to see rural towns grow.
As a result of the COVID-19 pandemic, many rural areas were finally experiencing some population growth - but the tax could snuff that out.
"Rural Victoria already faces many barriers to increasing housing supply," Cr Brown said.
"Utility connection costs for gas, water and electricity are already significantly higher than in Melbourne, the WGT on housing development will further discourage rural landowners and developers to build new houses and apartments."
The WGT could make an existing problem in rural Victoria even worse.
"The tax is likely to lead to an increase in property and housing prices making it hard for locals to buy into the towns they grew up in, Cr Brown said.
The WGT would reduce the ability of councils to reach agreements with developers to make a contribution to important local infrastructure and projects.
Cr Brown said RCV was not against the tax.
"But we do need a mechanism to mitigate its negative effects on rural housing developments.
"Revenue created by the tax should be spent in the rural communities where it was raised.
"At a time when the rural population is growing, it is imperative to ensure that people have the safe, affordable, well-serviced and good-quality homes they deserve."
