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AGL and other ASX stocks to be hit by Victorian budget

Australia’s second most populous state handed down its budget yesterday with a promise of a $1 billion surplus in the new financial year, despite spending big on infrastructure like roads, rail and hospitals.

But the financial burden will be borne by some Victorian taxpayers, property investors and a handful of ASX companies with Tim Pallas, Treasurer of Victoria, projecting the surplus to grow to $1.5 billion in the following financial year before averaging $3.4 billion a year over the budget period.

That’s good news for the state’s coffers, but it could prove to be a drag on a number of sectors at a time when the Australian economy is walking a tightrope.

The federal election giveth, the state taketh away

The first group to be slugged are foreign property investors, as the duty for this group will rise to 8% from 7%, while foreigners who do not live in the properties they buy will face a 0.5 percentage point increase in absentee tax to 2%.

Overseas property investors have retreated from our market and one reason for this retreat is falling house prices. This tax increase will likely mean even fewer might be willing to return to the market, even as the federal election and the prospect of interest rate cuts spark hopes that our property slump is turning the corner.

A further drop in international demand for Australian investment property could impact on apartment builders like Mirvac Group (ASX: MGR) who have projects in the state, although building materials suppliers like CSR Limited (ASX: CSR) could also feel the pinch.

Cold start for ASX-listed car dealers

Luxury car buyers are another group that will have to cop higher taxes. Luxury car sales are already on the nose from what is known as the ‘negative wealth effect’ from declining property values. This has put strain on our listed car dealers and forced AP Eagers Ltd (ASX: APE) and Automotive Holdings Group Ltd (ASX: AHG) to undertake a yet-to-be-completed merger.

The increase in the luxury car tax won’t be welcome news for the sector.

ASX energy giants still under political pressure

Energy companies have also fallen into the sights of Treasurer Pallas. The Victorian State Government is upping pressure on electricity and gas companies with the threat of bigger fines and more oversight from the industry regulator.

The AGL Energy Limited (ASX: AGL) and Origin Energy Ltd (ASX: ORG) share prices have been under pressure as the Federal Government waved a big stick at energy producers and retailers in an effort to win votes, after the cost of energy has skyrocketed over the past few years.

The regulatory shakeup announced by Victoria shows the political risks to the sector had not abated even though the federal election is behind us.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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