Andrews Government starts paying down pandemic debt with payroll, land tax increases, public sector cuts and infrastructure delays
The 2023-24 State Budget of the Andrews Labor Government aims to protect Victoria’s AA credit rating, with a combination of tax increases to large businesses and property owners, delays to infrastructure projects and cuts to the public service – all while still funding 2022 election commitments.
Treasurer Tim Pallas has reported a $4 billion forecast deficit for 2023-24, but is projecting a $1 billion budget surplus in 2025-26, growing to $1.2 billion in 2026-27. Net debt is forecast to be $135.4 billion in 2023-24, increasing each year and peaking at $171.4 billion in 2026-27.
To help pay down this debt, Treasurer Pallas announced the COVID-19 Debt Repayment Plan, expected to raise $8.6 billion over the next four years, to repay $31.5 billion of pandemic borrowings, funded by cuts to the public sector and tax increases on large businesses and owners of multiple properties.
From 1 July 2023, a temporary COVID Debt Levy that is projected to last for 10 years, will force businesses with national payrolls above $10 million a year will temporarily pay additional payroll tax of 0.5 per cent and businesses with national payrolls above $100 million will pay an additional 0.5 per cent.
From 1 January 2024, for Victorians owning two or more properties, the tax-free threshold for general land tax rates will temporarily decrease from $300,000 to $50,000, land holdings between $50,000 and $100,00 will attract a temporary additional fixed charge starting at $500 and landholdings above $100,000 will pay a $975 fixed charge.
Along with the COVID Debt Levy, WorkCover premiums paid by businesses will increase from 1.27 per cent to 1.8 per cent, an increase of nearly 42%.
From 1 July 2024 the payroll tax-free threshold will increase from $700,000 to $900,000, with a further increase to $1 million from 1 July 2025
Stamp duty for commercial and industrial properties will be abolished from 1 July 2024, replacing this with an annual property tax set at a flat 1 per cent of the property’s unimproved land value, with transitional arrangements applying.
The 2023-24 Victorian Budget has confirmed that construction on major capital infrastructure projects will be delayed by four years to help free up money to pay down state debt in the short term.
Construction on Airport Rail Link, Geelong Fast Rail and upgrades to western Melbourne rail lines have all been put on hold, as have upgrades to a number of major roads while the Commonwealth Government undertakes a 90-day audit of the country’s $120 billion infrastructure pipeline, not including federal election commitments or projects under major construction.
Except for Airport Rail, the Government’s signature Big Build projects are largely unaffected with construction works to continue.
The Victorian Government is pushing ahead to deliver on election commitments for transport projects confirming a $650 million upgrade to increase train capacity by up to 50 per cent on the Melton line, and further level crossing removals on the Cranbourne, Pakenham, Frankston, Lilydale, Sunbury and Werribee Lines, making them level crossing-free by 2030.
The Victorian Budget will also deliver funding to deliver on its election commitment to build 23 new Victorian-made trains in Ballarat to boost the regional rail network.
The budget extends the popular $250 Power Saving Bonus for all Victorian households until 31 August 2023 and introduces a new Victorian Veterans Card, providing discounts on vehicle registration, and free fishing and boating licences.
Free car registration for apprentices who rely on their vehicles for work is included, honouring an election promise.
The Budget invests $4.9 billion of election commitments to build and upgrade hospitals, boost healthcare services and give healthcare workers additional support.
This includes the building and upgrading of several major hospitals, including in West Gippsland, at the Northern Hospital, Austin Hospital, Dandenong Hospital, Queen Elizabeth II Hospital, Wonthaggi Hospital and Monash Medical Centre.
There is also $63 million to fund 20 new women’s health clinics, a dedicated Aboriginal-led women’s health clinic and mobile clinics and $50 million to fund fertility care.
The Budget delivers $4.9 billion in education election commitments, including building and upgrading preschools and schools across the state.
The Budget commits $1.8 billion towards early years education, including the building of new preschools on government and low-fee non-government school sites as well as 50 government-owned and run early learning centres across Victoria to deliver free three-and four-year-old preschool.
Six new tech schools will also be built across the state to improve students’ hands-on learning in science and technology.
One of the Andrews Government’s most popular election promises last year was to bring back public ownership of energy resources through the revival of the State Electricity Commission (SEC) privatised in the 1990s.
An initial $1 billion investment in the 2023-24 Victorian Budget will deliver 4.5 gigawatts of clean energy generation and firming capacity through renewable energy projects to meet Victoria’s renewable energy targets. This includes a $424 million energy and training package to help workers upskill.
At least $20 million has also been allocated to prepare the SEC for its new role in the Victorian energy market, including setting up its main office in Morwell, Victoria.
The end to native timber logging has been brought forward from 2030 to the end of 2023, accompanied by a $200 million transition package for the industry. This will include support for retraining in other sectors with the Government’s Free TAFE program or up to $8,000 in retraining vouchers for courses outside the TAFE sector. Support will also be made available to native timber mills.
The Victorian Parliament will be presented with appropriation and supply bills to enact the 2023/24 Budget measures which are expected to pass both houses of the Victorian Parliament in the coming weeks.
The COVID-19 Debt Repayment Plan’s levy on business will likely face fierce opposition from industry groups and the Victorian Opposition.
The response of credit rating agencies will also be keenly watched, to ensure Victoria does not spend more than the budgeted 7.1 per cent of revenue on interest repayments.
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