Big businesses, holiday-home owners and landlords will be asked to foot the bill for the Victorian government's COVID-19 debt, as part of a 10-year fiscal repair plan unveiled in the state budget.
Some jobs in the public service will also be slashed, with between 3,000 and 4,000 corporate and office staff set to go as part of a four-year $2.1 billion efficiency drive.
But jobs in other parts of the public sector, including frontline health worker roles, are expected to grow.
For weeks, the government had warned the budget would involve "challenging" decisions as it aimed to pull back debt amid rapidly rising interest rates.
On Tuesday, Treasurer Tim Pallas unveiled a "COVID Debt Levy", a two-part tax which the government expects will raise $8.6 billion over the next four years and will remain in place until 2033.
Firstly, businesses with a national payroll of more than $10 million will pay additional payroll tax of 0.5 per cent, or 1 per cent if their national payroll exceeds $100 million.
Mr Pallas said he expected the payroll increase would affect about 5 per cent of Victorian businesses.
Secondly, the threshold for Victoria's land tax — which does not apply to the family home — will be lowered from $300,000 to $50,000.
An annual charge of $500 will apply to affected properties between $50,000 and $100,000 as part of the 10-year levy.
A charge of $975 will apply for property landholdings worth between $100,000 and $300,000, while land tax rates for properties above $300,000 will rise by $975 plus 0.1 per cent of the land's value.
Mr Pallas, who estimated about 860,000 landowners would be affected, argued the COVID levy targeted businesses and property owners who had seen healthy recent profits.
"We think big business has the capacity to make a modest additional contribution that over the next 10 years to assist in repaying the COVID debt," Mr Pallas said.
But the opposition accused the government of delivering a painful budget that asked Victorians to pay for the government's financial mismanagement.
Net debt continues to grow
Despite the 10-year COVID debt repayment plan, net debt is still forecast to grow to an eye-watering $171.4 billion in four years' time — nearly a quarter of the state's economy.
That's partly because the budget provided billions of dollars in funding for major election commitments made by the government, including significant commitments across health.
Budget papers estimate Victoria's net debt will rise from $116.7 billion this year to $162.2 billion by 2025-26, a modest reduction on the pre-election budget update of $165.9 billion for that year.
The state's budget is expected to climb back to a $2.9 billion cash surplus this year, but a $1 billion operating surplus will not be reached until 2025-26.
When pressed on why net debt was still projected to remain high despite the imposition of a debt levy, Mr Pallas downplayed the importance of paying off debt taken on to fund state-building projects, compared to debt taken on during the pandemic.
Speaking to journalists in the budget lock-up, Mr Pallas said state-building debt could be likened to a mortgage, while borrowing during the COVID pandemic had become a credit card debt.
"A mortgage entered into for the right things, whether it's to grow your business or to get a roof over your house and to be able to look after your family, that serves a productive purpose in the future," he said.
"Credit card debt, given the level of interest that accumulates and the choices that you have to make in an emergency has been used, but you need to pay that off because credit card debt keeps accumulating."
The budget did outline a slowed rate of infrastructure spending, which is projected to be between $1-2 billion less each year than outlined in the pre-election budget update.
The government also outlined plans to use the Victorian Future Fund, which was established in last year's budget, to help pay down COVID-19 debt over time.
Credit rating agency S&P Global Ratings, which downgraded Victoria's credit rating from AAA to AA in 2020, said the budget's COVID debt repayment strategies were a positive sign but Victoria's fiscal outlook remained "weak" compared to other states.
"Higher payroll and land taxes, and savings should improve fiscal outcomes compared with the pre-budget trajectory," analyst Anthony Walker said.
"In saying this, the rising tax burden could influence investment decisions at the margin, potentially weighing on growth prospects slightly."
Credit rating agency Moody's said inflationary pressure, billions committed to election promises and capital spending on projects such as social housing and modernising the electricity grid would "elevate execution risk" for the state's budget repair.
"Despite the intrinsic strength of the Victorian and broader Australian economies relative to global peers, we do not expect Victoria's debt burden to stabilise before the end of fiscal 2028, maintaining negative pressure on the state's rating," senior credit officer John Manning said.
Some measures to ease pressure on small business
Small businesses have been offered some budget relief, with the payroll tax threshold rising from $700,000 to $900,000 from July next year, then rising to $1 million in 2025.
The government will also move to abolish stamp duty for commercial and industrial properties.
That transition, starting from mid-2024, will see business property owners able to pay an annual property tax over 10 years, rather than a lump sum upon purchase.
But foreign property investors will face increased fees, with the absentee owner surcharge rate rising from 2 per cent to 4 per cent.
The measure, which the government said would align Victoria's taxation of properties with New South Wales, is expected to bring in $283.3 million in 2023-24.
Real Estate Institute Victoria CEO Quentin Kilian said the budget's measures affecting his industry ranged from "good" to "horrible".
He branded the increased land taxes a "horror move" but said there could be "real benefits" to the reforms to stamp duty on commercial property sales.
High-fee private schools hit with payroll tax
Victoria's wealthiest private schools have also been asked to contribute to budget repair, as the government announced it will remove the payroll tax exemption for the top 15 per cent of non-government schools by fee level.
Budget papers estimated about 110 schools would be affected, in a measure expected to bring in $134.8 million when it takes effect in 2024-25.
Independent Schools Victoria chief executive Michelle Green said the news had come as a shock to the sector and would be "greeted with dismay" by parents who sent their children to private schools.
"It was made without consultation and is based on an arbitrary definition of a 'high-fee' school," she said.
"It is likely to have a damaging impact on the operations of many Independent schools, with the potential to disrupt the education of their students."
The government has also revealed the state's native timber industry will close at the end of this year, offering $200 million to help workers in that industry transition to other jobs.
The budget papers confirmed several measures flagged over the past few weeks, including rises to business premiums for WorkCover.
Opposition says budget inflicts 'pain' on all Victorians
Opposition Leader John Pesutto slammed the Andrews government for raising taxes, saying Victorians were paying the price for Labor's "incompetence".
"This is a budget that is mean. It is nasty," Mr Pesutto said.
"It visits pain on every Victorian."
Shadow Treasurer Brad Rowswell said only Labor could introduce new taxes and job cuts, but deliver a greater net debt.
"There is a reason why today's budget is printed in red, because it's not good news for every Victorian," Mr Rowswell said.
Mr Rowswell also said the hikes to land tax would exacerbate the state's housing affordability crisis.
"This is a tax on renters. This is going to make it harder for people who can least afford it to enter the rental market," he said.
"Measures introduced today are going to make it much more difficult for young people, for vulnerable people who are simply asking for a roof over their head."
Millions for flood recovery
The budget includes an extra $677 million for ongoing flood recovery, on top of $1.8 billion promised last year.
That includes $45.9 million for immediate response costs incurred by emergency services organisations, $7.1 million to support councils to undertake impact assessments and more than $23 million to repair VicSES Emergency Hubs at Rochester and Heathcote in Central Victoria.
The state government has also earmarked $234 million of additional flood recovery funding for programs that are planned to be partly funded by the Commonwealth, but are yet to be agreed upon.
Details about Commonwealth Games project funding were missing from the state budget, but a government spokesperson said the state's $2.6 billion commitment outlined in last year's budget remained.
The budget also included $601 million to build 23 VLocity trains, and $219 million for additional V-Line services, including extra weekend services on major regional train lines.
