2019 Victorian Budget Update

2019 Victorian Budget Update

Victorian State Budget overcomes property slump to continue delivering growth strategy


Managing Expectations

The re-elected Andrews Labor Government delivered its fifth Budget today that seeks to manage the State’s high population growth after a $5bn black hole opened up in its budget in the wake of a nationwide property slump.

The key issue for business investing in Victoria is whether the Andrews Government can pull off almost a complete infrastructure overhaul in Melbourne to prepare it for a population that almost doubles in the next 30 years to 8 million.

Treasurer Tim Pallas has budgeted for net debt to double to $50bn to give him the room to accommodate some big ticket infrastructure items, particularly the $15bn north-east road link that will go to tender later this year.

The Budget also allocates $1.5bn for the new hospital at Footscray, to cater for the explosive growth in Melbourne’s western suburbs where the population could rise by 3 million.

Looking forward, it’s vital that Daniel Andrews mends fences with the Morrison Government on Victoria’s infrastructure priorities, otherwise his government is in danger of shouldering more multi-billion dollar projects off its own balance sheet that will pressure the state’s narrow tax base that is almost totally reliant on property growth. However, given current relations, such a collaboration will require work from both ends.

Infrastructure Capital Spend

Having spent the past weeks preparing the ground for a difficult state budget, Pallas’ announcement of a $1 billion surplus in 2019/20, and average of $3.4 billion over forward estimates is clearly intended to calm business and interest groups that the state’s finances are still on track.

Keenly aware of the wave of voter sentiment that delivered the big election win last November, today’s budget again heavily invested in transport and social infrastructure:

  • $15.8bn to fully fund North East Link, including 10,000 new jobs;
  • $3.4bn to upgrade suburban rail network, including Sunbury, Hurstbridge and Cranbourne lines, and $615 million for regional public transport;
  • $6.6bn for 25 additional level crossing removals;
  • $3.4bn over 10 years to implement the Solar Homes program;
  • $1.4bn to fully fund the Footscray Hospital, a 504 bed facility – part of $5.5bn total health package; and
  • $671 million additional funding for 17 new schools, part of a $1.4bn school building and upgrades package.

There are a range of targeted new spending, revenue and savings measures:

  • A $27.5 million boost to the Essential Services Commissioner to crackdown on the retail practices of energy companies;
  • Higher stamp duties on foreign property buyers and absentee owners;
  • Stronger land tax receipts from annualised land valuations;
  • Greater tax duties on luxury car purchases over $100,000 and
  • $1.8bn on service efficiencies, that will put pressure on all departments and agencies to find major savings

Notably absent however was any real mention of the visionary Suburban Rail Loop, with no new money committed, and no indication of a project timeline, representing a sharp shift from two weeks ago when Federal Labor promised $10bn to support it.

Jobs Creation

Maintaining the Government’s jobs focus which has played a role in all its budgets and elections, the 2019 Budget includes key announcements such as:

  • $132 million for TAFE upgrades and free TAFE expansion, including $7.2m for agricultural skills and training;
  • Cut to regional payroll tax to 25 per cent of the metropolitan rate;
  • Payroll tax-free threshold will increase to $700,000 by 2022-23; and
  • $8.8 million to expand JobsBank and the Jobs Victoria Employment Network to support disadvantaged job seekers.

Targeted Social Services Spending

Having repeatedly committed that families and communities across Melbourne and Victoria was the Andrews Government’s priority concern, the Victorian Government has committed to:

  • $882 million for universal, publicly-subsidised kinder, expanding over the next five to fifteen years;
  • $332 million to provide universal dental care access to over 600,000 Victorian school-aged children;
  • $173 million additional mental health funding and investment focussed on early intervention;
  • $154 million for 6,500 hectares of new public-access parkland;
  • $209 million for 1000 new public housing properties across Melbourne and regional Victoria, including units specifically designed for women and children facing family violence; and
  • $1.8bn for new prisons, and $60 million for rehabilitation and diversion programs.

The next steps for the Victorian Government will be how they manage this unprecedented spending and infrastructure investment in a responsible fiscal framework that does not transfer the huge costs of the state’s growth onto taxpayers. As well, the Government will have to balance the voters’ expectations of a growing pipeline of projects being delivered on time and on budget, when material and labour force costs are rising.

A complete list of 2019/20 Victorian Budget measures, spending and finances may be found here

This note has been compiled by Newgate’s Melbourne office. Should you wish to discuss this is in further detail, please contact us on (03) 9611 1800.

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