Big business and property investors are set to be slugged with new taxes and the public sector slashed in an effort to repay $31.5bn worth of emergency funds borrowed by the Victorian government at the height of the pandemic.
The treasurer, Tim Pallas, on Tuesday handed down his ninth and “most difficult” budget, which details a “Covid debt repayment plan” to bring the state’s borrowings – set to total $171.4bn by 2026/27 – under control.
He also announced an end to payroll tax exemptions for about 110 “high-fee” private schools, which is expected to deliver an additional $422.2m in government revenue.
“We’re ensuring that while our kids will of course have memories of the trauma that was the Covid years, they won’t necessarily be paying for that trauma for the rest of their lives,” Pallas told reporters.
However, the budget delivers on Labor’s key election commitments on health and education and brings forward the end date to native timber logging in the state.
From July, businesses that pay more than $10m in wages nationally – or 5% of the state’s employers – will pay a “Covid debt levy” via a payroll tax surcharge of 0.5% for their Victorian employees. Businesses with national payrolls above $100m pay a 1% surcharge.
From January 2024, property investors will face additional land tax charges, with landholdings worth over $300,000 to pay a $975 fee plus 0.1% of the total land value. A fee of $500 will apply for landholdings worth $50,000-$100,000; and $975 for land worth between $100,000 and $300,000.
Family homes will be exempt from the changes, which Pallas said will affect 860,000 landowners who will pay an average of $1,300 in additional taxes annually.
Pallas said the “Covid debt” levies were “temporary, targeted and responsible” and structured to target “those with an ability to pay”. He said big business profits were up 24% over the past three years, and landlords have seen land values increase by 84% in the past decade. Rents also rose by 25% over five years.
The two measures, which will be in place for a decade, are expected to raise $8.6bn over the next four years.
In an effort to soften the blow for business, stamp duty will be abolished for commercial and industrial properties in favour of an annual property tax, and business insurance duties will be phased out over the next decade.
Payroll tax exemptions will be removed for about 110 high-fee private schools, which will raise $134.8m in 2024/25, increasing to $147.1m in 2026/27. The government will also double the levy paid by overseas property investors to 4%, and lift betting taxes from 10% to 15% of wagering revenue, in line with New South Wales.
The government has also identified $2.1bn in savings over four years, including reducing the public service by 3,000-4,000 workers – described as a return to “pre-pandemic levels” – and scaling back the use of labour hire and consultancy firms.
Pallas maintains the cuts to the public sector will not impact frontline workers such as nurses, teachers and emergency service personnel.
Public sector wages – one of the government’s biggest costs – is expected to account for almost $35.3bn of expenditure in 2023/24. This has grown by almost $2bn since the pre-election budget update in November, accounting for the doubling of the public sector wage cap to 3%.
The budget forecasts a deficit of $4bn this financial year – an increase of $400m since November. The deficit is then projected to shrink to $1.1bn in 2024/25, before building to surpluses of $1bn in 2025/26 and $1.2bn in 2026/27.
Net debt is expected to reach $116.7bn in June this year and is expected to keep growing across the forward estimates, reaching $135.4bn next financial year and an eye-watering $171.4bn in 2026/27 – 24.4% of the state’s economy.
Interest payments on state debt is forecast to total $5.6bn in this financial year – or $15m a day – up from the $5.17bn forecast six months ago. It will then grow to almost $8bn in 2026/27.
The government has managed to keep a lid on blowouts of its major projects – with a $565m increase in costs (or 0.3%) – but project completion timeframes have extended by 21%.
The budget rests on several key assumptions, including that inflation peaked at 7% in the 2022/23 financial year and will drop to 4.25% this year, before falling to 2.75% in 2024/25 and 2.5% in 205/56.
It also assumes population growth of 3.5% in 2023/24, while unemployment grows to 4.25%.
Pallas titled the budget “Doing What Matters” – the same slogan Labor used during its November election campaign – and he said it “funds every commitment made”. This includes $4.9bn for health and hospital upgrades, $2.1bn for new and upgraded schools and an initial $1bn to establish the State Electricity Commission.
The budget also announced the bringing forwards of the end date of Victoria’s native timber industry from 2030 to 1 January 2024, with a $200m package to help transition workers.
Aboriginal-led children and family services have also been allocated $140m.
Alongside the budget, the government will introduce legislation to parliament to ensure its “future fund” – which now totals $8bn – is only drawn down to pay off debt. It was established using funds from the part-privatisation of VicRoads last year.
The opposition leader, John Pesutto, on Tuesday said: “This budget shows that under Labor, Victoria is broke, life is getting harder and Victorians are being punished for the government’s incompetence”.
