The 2022-23 Victorian State Budget was handed down on Tuesday 3 May.
As with the Federal Budget, the Victorian Budget was prepared by an incumbent government facing an upcoming election, a promising recovery from the COVID-19 pandemic and an uncertain economic future in the context of global conflict and inflation concerns. Against this backdrop, the Budget is a high-spending budget focused on bolstering Victoria’s health and emergency response system, ongoing investment in infrastructure, and a broad range of social initiatives.
In order to fund the spending measures, the Budget is expecting to raise additional revenue from ongoing sources (most notably, land tax and stamp duty receipts). No new taxes are, however, proposed. In order to support this, the state’s debt is projected to materially increase over the forward estimates before gradually declining.
Whilst there are several new initiatives that should be monitored closely (such as potential equity funding to eligible businesses and the proposed establishment of The Victorian Future Fund) - in addition to new spending commitments - few details have been provided at this stage. Outlined below are the key priority measures announced.
The Victorian Government has announced significant infrastructure spending (in excess of $21 billion) over the next four years. The spending continues the Government’s commitment to big-ticket transport projects, highlighted by:
- an investment of $3.5 billion in transport across the state, including allocations for planning, infrastructure, maintenance, and services;
- $383 million for additional train services, as well as new transport infrastructure (such as level crossing removals, rail extensions, train station upgrades and road upgrades). This funding also includes preparing for the opening of the Metro Tunnel;
- $265 million in new and upgraded trains and trams, which will be built and maintained in Victoria, as well as a further $248 million in V/Line regional rail operations; and
- $993 million in upgrading Victorian road networks and improving road safety.
The emphasis on transport infrastructure in the Victorian Budget (particularly in regional areas) echoes the Federal Budget, which similarly focused on connecting and transforming rural and remote areas.
The Victorian Government has indicated a commitment to support manufacturing in Victoria, by budgeting $120 million for the ‘Victorian Industry Fund’. This new fund prioritises areas that are strategically important to Victoria – most notably, health, defence, agriculture and renewable energy.
The $120 million commitment includes a new $40 million Victorian Industry Investment Fund to provide grants to support rapidly growing businesses (including supply chains that underpin economic resilience), as well as $20 million for attracting companies to the State. Other smaller programs have been flagged for the Victorian defence industry as well.
No details have been made available regarding the funding or eligibility criteria at this stage. We will continue to monitor this closely.
Taxes, duties and levies
While no new tax measures were outlined in the Budget, the Budget contained the following interesting observations relating to the revenue expected to be derived from state taxes and duties over the forward estimates:
- Land tax: Land tax revenue is expected to increase to $4.8 billion in 2022-23 and to grow by an average of 7.2% per year over the forward estimates. Land tax revenue from residential properties is expected to decrease in 2024-25 before recovering in 2025-26. Commercial land values are expected to grow modestly in this context, with some uncertainty in the retail and office sectors.
- Stamp duty: Revenue from transfer duty is expected to increase to $10.2 billion in 2021-22, consistent with strong residential property price growth across 2021 and elevated transaction volumes. Transfer duty revenue is, however, forecast to decline in 2022-23, in line with a forecast moderation in residential property market activity. Growth is then expected by an average of 2% per year over the forward estimates.
- Windfall gains tax: Revenue from the windfall gains tax is expected to average $58 million each year over the forward estimates starting in 2023-24. The windfall gains tax, which was announced by the Victorian Government prior to the Budget, will apply to windfall gains associated with planning decisions to rezone land that create an uplift in land valuations above $100,000. Landowners will have the option to defer payment of the tax until the next dutiable transaction or until 30 years elapse, whichever occurs first. Exemptions are available in specified circumstances (including certain types of residential land, land held by charities and universities, and land rezoned to certain rural zones).
- Mental Health Levy: Businesses are expected to pay almost $1 billion a year for the mental health levy, which commenced on 1 January 2022. The levy operates as a payroll tax surcharge on wages paid in Victoria by liable businesses with national payrolls over $10 million a year.
The Budget announces an intention to establish the Victorian Future Fund. The Fund will be set up using proceeds from the VicRoads Modernisation Joint Venture that is currently progressing, and will be aimed at managing the fiscal impact of COVID-19 by reducing the debt burden on future generations. The Fund is projected to have a balance of around $10 billion in the medium term.
A number of other spending initiatives have been announced by the Victorian Government in the Budget. Key measures include:
- funding for a one-off $250 Power Saving Bonus for all Victorian households that use the Victorian Energy Compare website between 1 July 2022 and 30 June 2023;
- $246 million for the Sick Pay Guarantee pilot program. This program will guarantee up to 5 days of sick leave or carer’s leave entitlements for eligible casual employees and contract workers in Victoria;
- $1.7 billion to transform the Melbourne Arts Precinct;
- $1.8 billion committed to building, upgrading and maintaining schools, and an additional $1.2 billion of further education-related programs;
- $4.2 billion to the pandemic response, including $522 million to support hospitals;
- $2.6 billion over the next 5 years to help fund the Commonwealth Games;
- $300m committed to additional legal support and legal access services; and
- $400 million for programs and services directly related to the Aboriginal community (including $151 million to support self-determination and the treaty process between First Nations’ Peoples and the State).