A deal to strengthen taxes on empty homes has been struck between the Victorian government and the Greens.

An upper house vote on changes to Victoria’s vacant residential land tax was put on ice earlier this month when the Greens and the coalition refused to back the legislation.

But the bill is set to return for debate after the government bowed to the Greens push to lift the tax rate on homes left unused for consecutive years.

Under the deal, the rate would be scaled up from one per cent of the vacant property’s total improved value to two per cent in the second consecutive year and three per cent from the third consecutive year.

The government has pledged to extend an exemption for holiday homes occupied by owners for more than four weeks a year to include use by immediate family members, as well as properties held in a trust when the changes were made public in October.

Newly built dwellings could also escape the tax for three years if owners can show they made genuine attempts to sell at or below the price they expected when construction began.

After that point, the tax would be calculated at a rate of one per cent each year until properties are sold.

Figures would be published every year on the number and value of properties receiving these exemptions.

In addition, the government has agreed to trial a compliance system for the tax across metropolitan Melbourne, starting with apartment towers in 2024 then inner and middle suburbs in 2025.

The results of the trials will be published by the State Revenue Office in 2025.

Treasurer Tim Pallas said the changes would give renters and home-buyers more options and put downward pressure on prices.

“Our reforms will provide more homes for families across the state – it’s vital that the legislation passes,” he said in a statement on Tuesday.

Victorian Greens leader Samantha Ratnam suggested the stronger vacancy tax could free up as many as 5000 extra homes as long-term rentals.

“These changes secured by the Greens will help drive down rents and mean more people can access a home,” she said.

Victoria’s vacant residential land tax currently applies to homes unoccupied for more than six months a year across 16 inner and middle Melbourne councils.

Owners are charged one per cent of the property’s total value a year, meaning one worth $500,000 would be taxed $5000.

Under Labor’s initial proposed changes, the tax would be expanded statewide from January 2025, along with existing exemptions for holiday homes and properties under renovation.

Owners of residential land in established parts of metropolitan Melbourne who leave it undeveloped for more than five years would be liable to pay the tax from 2026 under the government’s proposal.

About 900 Melbourne properties are subject to the vacant residential land tax at present, netting the state about $10 million a year.

Mr Pallas previously said all other changes in the sweeping tax legislation were minor and would have no impact on state revenue.

But the Clean Energy Investment Group last week flagged renewable generators could be on the hook for higher annual fire services levy charges under an accompanying tweak to the Valuation of Land Act.

In response, the government has agreed properties hosting wind, solar and battery generation will be levied at the public benefit rate, rather the higher industrial rate, so as not to discourage renewable investment in the state.

Callum Godde and Cassandra Morgan
(Australian Associated Press)