As parliament returned on Tuesday, Treasurer Tim Pallas announced the government would introduce legislation to expand the vacant residential land tax to all of Victoria, including regional areas.
Currently, the tax applies to residential properties across 16 inner and middle Melbourne councils that are unoccupied for more than six months a year.
Owners are annually charged one per cent of the property's improved value, meaning a vacant home with a value of $500,000 would be taxed $5000.
The change is slated to start from January 2025.
"We can't afford really to have vacant land in metropolitan Melbourne sitting idle year-on-year," Mr Pallas said in a speech at a Property Council breakfast on Tuesday.
"Our clear message to landowners is to either develop the land or sell it to someone who will."
State government agencies will also be asked to justify why they are holding vacant land rather than putting it back into the marketplace.
"We are not putting in place a rule for landowners that we as a state are not going to deploy to ourselves," Mr Pallas said.
Vacant residential land tax currently nets the Victorian government about $6 million a year and is administered by the state revenue office.
It is unclear how much extra revenue the reforms will bring to the state's coffers, with the treasurer yet to front media to provide further details.
The Property Council's Victorian executive director Cath Evans said the announcement came as a shock and the council wasn't consulted on the changes.
"There may well be (adverse consequences), and the devil will be in the detail," she told reporters at parliament.
"If work which is designed to accelerate housing ... is not delivered, then these reforms may in fact be a further impediment to the delivery of housing stock."
Ms Evans was to meet with the treasurer on Tuesday afternoon in a bid to clarify the new policy.
Shadow Treasurer Brad Rowswell said one of the first acts of the government under new Premier Jacinta Allan was to slug Victorians with an increased tax.
"We've got here the tired, old, same Labor government back to their own tricks," he said.
The Greens welcomed the proposed change but suggested the tax would remain ineffective while vacancies were self-declared by property owners.
"Expanding the vacancy tax is an important step, but it needs to be properly enforceable," state party leader Samantha Ratnam said.
The Victorian government last month announced an Australian-first, consumer-facing levy on short-term accommodation bookings with platforms such as Airbnb and Stayz.
The proposed 7.5 per cent levy was the only tax unveiled as part of Labor's long-awaited housing statement to boost supply amid a nationwide crisis.
From January, 860,000 investment, holiday home or business property owners will also pay $1300 a year on average in extra land tax as part of a 10-year $31.5 billion COVID-19 debt levy revealed in the state budget.
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