THE Victorian Government's controversial Growth Areas Infrastructure contribution tax on land sales in Melbourne's urban growth boundary has been defeated in Parliament.

The Coalition, Greens and DLP MPs, who hold the majority in Victoria's Upper House, yesterday voted down the Planning and Environment Amendment (GAIC) Bill.

Landholders, developers and local councils on Melbourne's rural-urban fringe have spent the past year campaigning against the GAIC, which would have imposed a $95,000/ha charge on anyone buying land brought into Melbourne's urban growth boundary since 2005.

The Government has argued the contribution was crucial to ensuring those who gain from the "uplift'' in the value of land brought into the urban growth boundary contribute to the cost of extending roads, public transport and other infrastructure.

But opponents, such as the Taxed Out group, have argued the Government has stubbornly insisted on the inequitable imposition of the contribution on the first buyer of land.

Taxed Out chairman Michael Hocking said he was relieved the GAIC bill has been defeated.

"(But) We are also disappointed the Government showed no respect for the grave concerns of a large number of organisations including landowner groups, peak industry bodies and growth areas councils and attempted to push this deeply flawed policy through parliament,'' Mr Hocking said.

"We are grateful to the opposition parties who listened to landowner and industry concerns and had the common-sense to vote against the bill.''

"If the Brumby Government is to reintroduce this bill to parliament they will need to go away and take on board what stakeholders and the community are saying and that is that the tax should be payable at the point of development.''

Opposition Planning spokesman Matthew Guy said thousands of landholders who would have faced financial ruin if Labors unfair plan had succeeded.

"The Coalition believes a GAIC should not be levied at the start of the process where it will be added to holding costs, interest payments and land costs which have a much greater detrimental impact on housing affordability,'' Mr Guy said.