Victorian Budget 2023-24: Tax increases and a debt repayment plan

23 May 2023

Victorian Budget 2023-24: Tax increases and a debt repayment plan

This afternoon, Treasurer Tim Pallas handed down his ninth Victorian State Budget and the first since the November 2022 State Election. Mr Pallas delivered a conservative and difficult budget full of funding cuts to lapsing programs, new taxes, and a $31.5 billion COVID-19 Debt Repayment Plan to pay back funds borrowed during the pandemic.

Victoria’s amassment of record debt has been attributed to the State’s $40 billion response to the COVID-19 pandemic. The 2023-24 State Budget delivers on step four of the Government’s four-step fiscal strategy, expected to restore the Budget back to an operating surplus of $1.2 billion by 2026-27.

The Treasurer gave a positive outlook for the future of the state’s economy, despite the current economic headwinds and debt position following the pandemic. Victoria’s economy is expected to grow by 2.75 per cent this financial year. However, the Budget also confirmed that the State’s record debt, far larger than any other Australian state, is expected to reach $171.4 billion by 2027.

A key centrepiece of the Budget is the COVID Debt Repayment Plan which plans to address COVID debt over the next 10 years. Mr Pallas described the plan as “temporary, targeted and above all, responsible”. Under the plan, $2.1 billion in savings will be achieved over four years by cutting spending on public servants, consultants, and labour hire. Premier Daniel Andrews confirmed that although the public sector is expected to grow by approximately 2,000 people, including front line workers, the public service, which increased dramatically during the pandemic, will be reduced. This is expected to cut approximately 3,000 to 4,000 jobs from the public sector. The Plan also includes a temporary COVID Debt Levy on payroll tax for businesses with national payrolls above $10 million (around 5 per cent of Victorian businesses), which is expected to raise $8.6 billion over four years and will end in 2033.

Under the Plan, approximately 860,000 property owners will face new taxes on investment properties and holiday homes. A new landholdings levy will be introduced, and the land tax threshold will be lowered for larger landholdings, amounting to payments of an additional 0.1 per cent of land value. However, this won’t include primary residencies. In addition, the Victorian Future Fund will be utilised to further pay down state debt, focusing on long-term investments such as infrastructure, with the aim of stabilising Victoria’s finances to pre-pandemic levels by 2033.

With a continued focus on health, this year’s Budget provides a further $4.9 billion in funding, including $320 million for the Hospital Infrastructure Delivery Fund and $776 million for dedicated mental health services. This comes as the Government continues to implement all recommendations from the Royal Commission into Victoria’s Mental Health System over the next 10 years. Women’s health was also prioritised with $63 million for 20 new women’s health clinics and $50 million for public fertility care.

Families will be supported through the $1.8 billion ‘Best Start, Best Life’ program which will deliver free three-year old kinder, plus a $235 million package to expand the Outside School Hours Care program to 30 specialist schools. Beyond this, $2.1 billion was provided to build new schools and maintain and upgrade existing ones, while the eligibility criteria for training subsidies, including the Free TAFE program, was expanded to allow students to take multiple courses to upskill in priority training pathways.

For small and medium businesses, Stamp Duty for commercial and industrial properties will be abolished on 1 July 2024, to be replaced with an annual tax. This is expected to add an additional $50 billion to the economy. Notably, current owners will not be affected. For small businesses, the Budget will raise the tax-free threshold for payroll tax from $700,000 to $900,000 from 1 July 2024, up to $1 million from 1 July 2025.

The Government continues to carry out its Big Build plan with this Budget providing an additional $7.3 billion to continue public transport infrastructure projects that include the Metro Tunnel, the Level Crossing Removals, the Suburban Rail Loop, the West Gate Tunnel, and the North East Link. This also includes $650 million to upgrade the Melton Train Line.

Delivering on the Government’s election commitment to reinstate the State Electricity Commission (SEC), the Budget allocated an additional $24 million in 2023-24 to continue the process of setting up the SEC. This comes in addition to the initial $1 billion equity investment over the next two years.

For industry, domestic manufacturing took precedence, with $601 million to manufacture 23 new VLocity trains in Victoria; $36 million for a Made in Victoria manufacturing fund; $23 million for a Major Events Fund; as well as a further $12 million in funding for the mRNA industry.

Mr Andrews, speaking at the stakeholder budget lock-up, said this Budget was the most challenging of his political career, saying “many of the budget principles had to be put to one side (during the pandemic)” and that the State’s debt had to be paid. Despite this, the Premier confirmed all election commitments have been honoured.

The Premier said his personal highlight was the $140 million in funding for improving outcomes for First Nations children. Moreover, acknowledging the upcoming referendum on a constitutionally enshrined Voice to Parliament, the Budget contained $82 million for the First Peoples’ Assembly of Victoria to enter Treaty negotiations.

For further information on key portfolio measures, please refer to GRACosway’s detailed briefings:

Key Parameters 2023-24

Net debt to reach $171.4 billion by 2027
Unemployment is forecast at 3.75% in 2022-23, rising to 4.25% in 2023-24
440,000 jobs created since 2020
Net debt is $135.4 billion in 2023-24
Consumer price index is 4.25 per cent in 2023-24.

Further Reading

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CONTACT:

Richard King
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M: +61 407 766 633
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Director – Public Affairs
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E: mkiwan @gracosway.com.au