Playing in the morning field Paddison fired a 4-under 68 to claim the lead from compatriot Mark Brown.
Finishing later in the day, Arnold joined Paddison in the lead on 9-under the card courtesy of his 5-under 67 second round.
"I made a lot of really nice putts today," said Arnold who had seven birdies in the second round.
"Putting is one of my strengths but I usually drive the ball really well and hit a lot of greens."
"If I can putt better than average then there is no reason that I can't shot a good score every day."
Full of confidence Arnold already has one eye on the Jack Harris Cup and adding his name to the list of Victorian PGA champions which includes Kel Nagle, Peter Senior, Stuart Appleby and Marc Leishman.
"There is obviously another two days to go but I have put myself in a good position heading into the weekend. So hopefully I will be holding the trophy on Sunday," added Arnold.
"I have been playing really well; I have been shooting plenty of good scores so I was confident that I would play well this week. I feel good about my game."
However Arnold and Paddison will have tough competition as overnight leader Mark Brown is also positive of his game heading into the weekend rounds.
"I felt like I have played well the last couple of years without getting a win so it would be nice to get over that hurdle," said Brown who is tied third on 8-under the card.
"I am hitting the ball pretty well. If you're going to be in contention it's nice to be in control of what you are doing tee to green."
Joining Brown is Michael Choi who believe his local knowledge has been key to his success at the Heritage Golf and Country Club over the first two rounds.
"I have played a fair few rounds here leading into the event. I'm not hitting it the best but because I know the course so well it feels like I have an advantage," said Choi.
"My expectations weren't too high, I just wanted to have a couple of solid rounds which I have so it's going well."
Choi and Brown are joined on the leaderboard by Kurt Barnes (NSW) and Rohan Blizard (NSW).
A shot further back are Victorians Paul Sheehan, Steve Jones and amateur Ben Eccles.
Rounding out the top-10 are Luke Humphries (NSW), Michael Hendry (NZ), Chris Gaunt (VIC) and Alex Hawley (NSW).
The second round cut was made at 1-over 73 with 55 Professionals and three amateurs making it to the weekend rounds.