Australia: 2019/2020 Victoria State budget update

Introduction

The State budget released yesterday is carefully crafted around delivering on election promises made in the course of last year's election campaign, and sustaining ongoing infrastructure investment, especially in transport. It is sobered by reductions in revenue (primarily from reduced stamp duty returns because of a lower transaction volumes and prices).

There are a few pain points, most notably required reductions in public service expenditure, and increases in stamp duty surcharges for certain property transactions.

Perhaps the most re-assuring aspect of the Budget is its consistency with what has gone before, demonstrating a commitment to stay the course, which has proven so far to be both economically and electorally successful.

The following paragraphs provide relevant highlighted details and commentary on most of the key sectors.

State Financial Position & Tax

The key takeaways on the State's financial position are:

  • The budget papers estimate a slim operating surplus of $1 billion in 2019-20, and surpluses averaging $3.4 billion a year over the forward estimates.
  • Total revenue is expected to grow by a subdued 2.2% to reach $71 billion in 2019-20, then recover to an average growth rate of 5% per year over the forward estimates.
  • The growth of property-related revenue in the near term has been revised down as a result of the softening property market.
  • Growth in non-property related tax revenues continues to grow strongly.

The key tax and duty initiatives in the 2019/2020 budget are:

  • The current exemption for corporate reconstructions will be replaced, from 1 July 2019, with a duty rate of 10% of the duty otherwise payable. The qualifying provisions for such concessional relief will also be expanded.
  • An increase in the absentee landowner surcharge from 1.5% to 2% from the 2020 land tax year.
  • An increase in the land transfer duty surcharge on foreign purchasers of residential property from 7% to 8%. This will apply to contracts entered into after 1 July 2019.
  • An increase of motor vehicle duty imposed on luxury vehicles from 1 July 2019. Two new super-luxury thresholds will also be introduced with greater duty rates.
  • A cut to the regional payroll tax rate to 1.2125%, phased in by 2022-23. This will bring the regional payroll tax rate down to just 25% of the metro rate (down from 50% currently). The eligibility criteria for this payroll tax concession will also be expanded.
  • A 50% discount on land transfer duty for commercial and industrial properties in regional Victoria, phased-in by 2023-24.
  • An increase in the payroll tax-free threshold from $650,000 to $700,000 by 2022-23 (with incremental $25,000 increases in 2021-22 and 2022-23).
  • Removal of the land tax exemption for contiguous land in metropolitan areas.
  • Removal of the exemption for gold from royalties from 1 January 2020. The royalty rate will be 2.75% of the net market value of gold production.

The budget papers estimate a slim operating surplus in each and every year over the forward estimates, balancing the Government's ambitious spending programs in infrastructure and core services with variable growth in revenue.

Revenue growth over the next 12 months has been revised down as a result of the subdued property market which will impact revenue from transfer duty and land tax. However, total revenue growth is expected to return to trend (circa 5%) from 2020-21 onwards.

Corporate reconstruction transactions that were previously exempt will be hit with a reduced rate of duty, which will no doubt cause some consternation. There will be an increase to the foreign stamp duty surcharge and the foreign land tax surcharge, as well as an increase in duty on luxury motor vehicles. Rural and regional areas will benefit from new and improved concessions relating to payroll tax and transfer duty.

Infrastructure

The Government has continued to commit significant funds to existing and new infrastructure projects, with a particular emphasis on transport. The key initiatives in this area include:

Road

  • North East Link: $15.8 billion to connect the M80 Ring Road with an upgraded Eastern Freeway.

Rail

  • Continuation of the $6.6 billion Level Crossing Removal project, with 25 additional level crossings to be removed in the following year.
  • $750 million to duplicate the Cranbourne line.
  • $530 million to duplicate sections of the Hurstbridge rail line.
  • $2.1 billion platform, stabling and traction power upgrades to the Sunbury line.
  • $300 million towards commencing detailed planning and pre-construction works for the Suburban Rail Loop, a 90km rail line circling Melbourne's suburbs.

Other

  • $145 million for 10 new E-Class trams and upgrades to Z-Class trams.

The Government is continuing its $6.6 billion railway crossing renewal programme, promising the removal of a further 25 level crossings in the coming year. Suburban and regional railway lines will also be upgraded. The Government has allocated funding for upgraded trams ($163 million), the State bus network ($50.1 million), and bike and pedestrian paths ($45.4 million).

The $15.8 billion North East Link is the long-awaited road project that the Government estimates will take thousands of cars off local roads.

The Government has also committed $29.4 billion for new infrastructure projects. These projects include the new Melbourne Airport Rail link, which will run from Melbourne Airport to Melbourne's CBD via Sunshine, where it will link up with regional rail lines. A 90km rail line circling Melbourne's suburbs is also planned, which will include the construction of potentially 12 new underground stations. The Western Rail Plan will involve the separation of regional and metro rail services, with a view to accommodate high speed rail lines to Geelong and Ballarat.

Infrastructure expenditure is expected to increase up to almost $15 billion in the 2020/2021 budget year, before declining in the 2020/2021 budget.

Health

Against the backdrop of considerable investment in this sector over recent years, investment continues, with the major item being the investment in the Footscray Hospital of $1.4 billion.

Also of interest are a number of items directed to regional needs, including a further $100 million into the Regional Health Infrastructure Fund, to provide further support to regional health services. In a similar vein is $136 million to provide for 500,000 specialist appointments for regional and rural Victorians.

The Budget also provides $322 million to kick-start the rollout of free dental care to all Victorian government school students. This is also expected to have the collateral benefit of taking pressure of existing dental services.

There is also $300 million directed to supporting medical emergency services, in the form of more paramedics, ambulances and ambulance stations.

Education

The key initiatives in this area include:

  • $882 million to establish the rollout of three-year-old kindergarten for every child.
  • $671 million for the construction of 17 new schools.
  • $402 million to build, expand and renovate non-government schools.
  • $363 million towards upgrading classrooms and facilities across 59 existing schools, with a further 44 schools receiving funding to plan for their upgrades.
  • $291 million for the Relocatable Buildings Program, School Pride and Sport Fund and Asbestos Safety Program.
  • $218 million to support children with disability and additional needs.
  • $86.2 million for education and student support programs.
  • $57 million for the Building Better TAFEs Fund.

The 2019/20 Budget has allocated significant funding towards reform of the early childhood education sector; infrastructure; education and student support programs and initiatives to support children with disability and additional needs.

In relation to infrastructure, the Government has committed funding towards the construction, development and upgrade of new and existing schools throughout metropolitan and regional Victoria. The Government plans to construct 17 new schools and upgrade approximately 42 schools across metropolitan Victoria. Funding has also been committed to constructing 2 new schools and upgrading 17 across regional Victoria. The Government plans to acquire land for new schools in Hume, Melton, Macedon Ranges and Wodonga. Substantial funding has also been allocated to non-government schools.

The Budget has also committed funding to support children with disability and additional needs. This includes funding for approximately 5,400 students with high needs to attend mainstream and specialist government schools through the Students with Disabilities program.

The Government has also committed funding to education support programs including funding to support the expansion of School Breakfast Clubs program which presently provides free breakfasts in 500 schools across Victoria. The Budget also allocates funding to assist families facing financial hardship with school uniforms, textbooks and other essential items through the State Schools Relief program.

Jobs and employment

The 2019/20 budget focuses on training and skills development, work health and safety and providing opportunities for business to grow. The key initiatives include:

  • Payroll tax: along with payroll tax changes the Government will introduce payroll tax exemptions to incentivise employers to offer parental leave to mothers and fathers.
  • Work Health and Safety (WHS): pledging $16.6 million to strengthen WHS across Victoria; $3 million on health checks for farm workers and to employ Farm Safety Officers; and $14.5 million on mental health support for emergency services workers.
  • Training Initiatives: investing over $900 million in teaching and training initiatives to improve the skills and supply of workers in the farming, medical, police and education industries.
  • Support for the unemployed: allocating $8.8 million to expand JobsBank and the Victoria Employment Network to help the long-term unemployed find work.
  • A $150 million investment to establish the Victorian Jobs and Investment Fund.

For the third budget in a row the Government also released a gender equality budget statement highlighting initiatives that support women and their participation in all aspects of the budget including education and jobs.

Environment

The key initiatives in this area include:

  • $139.4 million over the next year, and $1.3 billion over the next 10 years, has been allocated to continuing the Solar Homes program.
  • $43.3 million has been allocated to the Managing Bushfire Risk program over the next four years, which aims to work with local communities to mitigate the risks and impacts of bushfires throughout Victoria.
  • $34.9 million over the next three years will be invested in interim measures to strengthen the Victorian recycling sector by accelerating collaborative procurement of recycling services by councils, improving markets for recycled content, community and industry education, and behaviour change programs focused on waste minimisation.
  • $30 million has been allocated to rehabilitating a waste stockpile at Lara. These funds will be put towards maintaining fire prevention measures and commencing works to clean up the site. This initiative is to be funded from the Municipal and Industrial Landfill Levy.
  • $15 million has been allocated to strengthening the Environment Protection Authority.
  • $2 million has been allocated to developing the first climate change strategy under the Climate Change Act (2017) to guide Victoria in tackling emissions reduction, addressing climate change and creating jobs in a low-carbon future.
  • A contribution of $1 million will be made to a 10-megawatt solar farm for Newstead to help transition the town to 100 per cent renewable energy.

There is a continued focus on issues that have recently attracted community concern, such as the future of the recycling industry following China's decision to ban foreign waste, rehabilitation of a waste stockpile at Lara, and reducing bushfire risk by increasing forest firefighting capacity and fuel management operations.

Significant funding is being directed towards the Environment Protection Authority in the lead up to the overhaul of Victoria's environment protection laws. The Environment Protection Amendment Act 2018 is due to take effect on 1 July 2020.

The government has also invested significantly in its solar homes program, which offers rebates and interest-free loans for solar panels, solar hot water systems and battery storage (for homes with existing solar energy systems).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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