Foreign investment plummets, as government boasts of its success

The value of international investment created by the Victorian government has collapsed, raising serious questions about the effectiveness of the state’s taxpayer-funded economic growth programs and the impact of sharp tax increases.

Despite a $400 million downturn in state-generated foreign spending over two years, the government has boasted that it dramatically exceeded its targets.

The revelations come as new data shows global investment in Victoria’s commercial and large residential property market has plunged $5 billion in three years, a decline the industry blames on the state’s tax regime.

The number of new jobs generated through international investment backed by the Allan government fell sharply by 59 per cent – from 4550 in the 2024 financial year to just 1874 in the 2025 financial year, figures in the Department of Jobs, Skills, Industry and Regions annual report reveal.

This downturn was mirrored in other key metrics determining the state’s success in attracting foreign money: wages generated fell 51 per cent to $230 million in one year, and the amount of innovation expenditure generated dipped 52 per cent to $205 million.

Despite the dramatic collapse in investment, the department boasted in its annual report that it had “significantly exceeded” its targets. However, those targets were significantly reduced from the previous year, even though the department exceeded them by more than 200 per cent.

A separate report commissioned by the Property Council of Australia found global investment into the Victorian property sector dropped sharply, from more than $10 billion in 2022 to $5 billion in 2025 – a fall of 53 per cent.

The Mandala Partners report – which analysed institutional investment into commercial and large-scale residential property – found Victoria received 40 per cent less in global institutional investment per capita than NSW.

It claims that if Victoria’s absentee owner surcharge on global investors were slashed, the state could create $5.7 billion in extra investment, $2.5 billion in GDP and 5900 new jobs by 2030.

Foreign investors in Victoria must pay the absentee owner surcharge on all property purchases, which increased to 4 per cent last year. This annual fee is paid in addition to general land taxes. Victoria and Queensland are the only states that apply this charge to commercial properties

Economist Saul Eslake said Victoria’s tax regime and struggling economy – with high debt and low per capita gross domestic product – had a significant impact on foreign investment in the state.

“Victoria is increasingly viewed by both domestic and foreign investors as a harder place to do business,” he said.

“Given Victoria’s increasingly parlous financial position, investors would have to be factoring into their calculations the increased risk they will be hit with higher taxes, or that governments will at some point do things that adversely impact economic activity in Victoria – whether that be raising taxes or cutting spending in ways that will adversely affect the returns they can expect from their investments, especially if it’s a commercial property.”

Eslake said a drop in foreign investment was not necessarily a bad thing – for example, fewer foreign buyers of established residential properties could be making Victoria more accessible for first home buyers.

But he said a drop in investment in new commercial or residential properties would be a cause for concern.

Government agencies tasked with driving international investment, such as Invest Victoria and Global Victoria, are among those to come under scrutiny as part of the government’s wide-ranging Silver review of state services.

The Silver review – which is complete but has yet to be released by Treasurer Jaclyn Symes – has examined hundreds of government agencies to identify entities and programs that can be condensed or eliminated.

Budget papers reveal the government has already slashed funding for trade and investment programs by about $18 million last financial year.

The drop in foreign investment comes at the same time Breakthrough Victoria – a private investment company established by the Victorian government to help rebuild the Victorian economy – posted a $5.7 million loss in the 2024-25 financial year.

Opposition trade and investment spokeswoman Bridget Vallence said high taxes, regulation and policy uncertainty was stifling international investment, and criticised the government for slashing dedicated investment initiatives.

She said it was disappointing the government had lowered its targets around jobs, wages and innovation expenditure generated from international investment compared with previous years.

“The Allan Labor government is sending all the wrong signals to investors by cutting dedicated international investment attraction initiatives and significantly increasing land tax and other investment-destroying taxes,” she said.

Grattan Institute economist Brendan Coates said the taxes on foreign investment were punitive and had probably led to some proposals for new developments struggling to get off the ground.

“The flip side, though, is it’s a source of revenue – it is a direct transfer of revenue from foreigners to the Australian taxpayer,” he said.

Property Council Victoria chief executive Cath Evans has urged the government to reduce or remove foreign investor surcharges to boost housing supply and attract major companies back to the state.

“We are currently the most harshly taxed property sector in the nation, and the industry is crying out for relief,” she said.

The investment figures come as data, released to The Australian, showed overseas investors now owned almost a quarter of Victoria’s debt, and the reliance on offshore lenders was accelerating rapidly.

A state government spokesman said it had dedicated funding, initiatives and resources to facilitate foreign direct investment.

“Over the last decade, Victoria has led the nation in business investment growth because of our world-leading innovation capabilities, established industries and skilled workforce,” he said.

“Despite a challenging global investment environment, Victoria continues to attract targeted and significant foreign investment that’s creating jobs, building business capability and driving growth across key industries.”

He said the government was progressing hundreds of potential projects in energy, defence, digital technology and advanced manufacturing.

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