Big businesses, cottagers and landlords will be asked to foot the bill for the Victorian government's COVID-19 debt as part of a 10-year fiscal recovery plan unveiled in the state budget.
The most important points:
- The COVID levy will impose higher taxes on large corporations and property owners for 10 years
- Net debt is still expected to rise to about a quarter of the state economy
- The state budget is expected to grow again this year to a cash surplus of $2.9 billion, but an operating surplus of $1 billion will not be reached until 2025-26
Some civil service jobs will also be cut, with 3,000 to 4,000 corporate and office workers leaving as part of a four-year, $2.1 billion efficiency drive.
However, jobs in other parts of the public sector, including health workers, are expected to increase.
For weeks,the government had warned that the budget would include "challenging" decisionsas it aimed to retire debt amid rapidly rising interest rates.
On Tuesday, Treasurer Tim Pallas unveiled a "Covid-19 debt levy," a two-part tax the government expects will raise $8.6 billion over the next four years and remain in place until 2033.
First, companies with a national payroll of more than $10 million will pay an additional payroll tax of 0.5 percent or 1 percent if their national payroll exceeds $100 million.
Mr Pallas said he expected the wage increase to affect about 5 per cent of Victorian businesses.
Second, the threshold for Victorian land tax - which does not apply to the family home - will be reduced from $300,000 to $50,000.
An annual fee of $500 applies to affected properties between $50,000 and $100,000 as part of the 10-year levy.
A levy of $975 will apply to properties valued between $100,000 and $300,000, while land tax rates for properties over $300,000 will increase by $975 plus 0.1 per cent of the land value.
Mr Pallas, who estimated around 860,000 landowners would be affected, argued that the COVID levy was aimed at companies and property owners who had made healthy profits in recent times.
"We think the big companies are in a position to make a modest additional contribution to help pay off the COVID debt over the next 10 years," Pallas said.
But the opposition accused the government of delivering an embarrassing budget that asked Victorians to pay for the government's financial mismanagement.
Net debt continues to rise
Despite a 10-year COVID debt service plan, net debt is projected to grow to a staggering $171.4 billion in four years — nearly a quarter of the state's economy.
This is partly because the budget provided billions of dollars in funding for major government election commitments, including major health commitments.
Budget papers estimate Victoria's net debt will rise from $116.7 billion this year to $162.2 billion in 2025-26, a modest reduction from the pre-election budget update of $165.9 billion for that year .
The state budget is expected to grow again this year to a cash surplus of $2.9 billion, but an operating surplus of $1 billion will not be reached until 2025-26.
When asked why net debt was expected to remain high despite the imposition of a debt levy, Mr Pallas downplayed the importance of paying down debt to finance nation-building projects, compared to debt contracted during the pandemic.
Speaking to reporters at the budget deadlock, Mr Pallas said public debt can be compared to a mortgage, while borrowing has become credit card debt during the COVID pandemic.
"A mortgage taken out for the right things, whether it's growing your business or getting a roof over your house and providing for your family, serves a productive purpose in the future," he said.
"Credit card debt, given the amount of interest that accrues and the choices you have to make in an emergency, is exhausted, but you have to pay it off because credit card debt keeps piling up."
The budget outlined a slowing pace of infrastructure spending, which is expected to be between $1-2 billion less each year than outlined in the pre-election budget update.
The government also outlined plans to use the Victorian Future Fund,which had been included in last year's budget, to pay off the COVID-19 debt over time.
Credit rating agency S&P Global Ratings, which downgraded Victoria from AAA to AA in 2020, said the budget's COVID debt-paying strategies were a positive sign, but Victoria's fiscal outlook remained "weak" in comparison with other states.
"Higher payroll and property taxes and savings will improve fiscal outcomes compared to the pre-budget trajectory," said analyst Anthony Walker.
"That said, the rising tax burden could affect investment decisions at the margin, potentially curbing growth prospects somewhat."
Credit rating agency Moody's said inflationary pressures, billions pledged in campaign promises and capital spending on projects such as social housing and electricity grid modernization would "increase execution risk" for the government's budget recovery.
"Despite the inherent strength of the Victorian and wider Australian economy relative to its global peers, we do not expect Victoria's debt to stabilize before the end of the 2028 financial year, continuing negative pressure on the state's rating," he said. senior credit officer John Manning;
Some measures to ease the pressure on small businesses
Small businesses have received some fiscal relief, with the payroll tax threshold rising from $700,000 to $900,000 from July next year and then rising to $1 million by 2025.
The government will also take steps to abolish stamp duty on commercial and industrial properties.
This transition, starting in mid-2024, will allow commercial property owners to pay annual property tax instead of a lump sum upon purchase for 10 years.
However, foreign property investors will face higher fees, with the absentee surcharge rising from 2 percent to 4 percent.
The measure, which the government said would bring Victorian property taxation in line with New South Wales, is expected to raise $283.3 million in 2023-24.
Quentin Kilian, CEO of the Real Estate Institute Victoria, said the budget measures affecting his industry ranged from "good" to "terrible".
He described the increased land tax as a "horrendous move" but said there could be "real benefits" from stamp duty reforms on commercial property sales.
High private schools were hit by payroll taxes
Victoria's wealthiest private schools have also been asked to contribute to the budget recovery as the government announced it would remove tax breaks for the top 15 per cent of non-government schools by fee level.
According to budget documents, about 110 schools would be affected, a measure expected to raise $134.8 million when enacted in 2024-25.
Independent Schools Victoria chief executive Michelle Green said the news had come as a shock to the industry and would be greeted with "disappointment" by parents who send their children to private schools.
"It was done without consultation and is based on an arbitrary definition of a 'high-fee' school," he said.
"It is likely to have a negative impact on the operation of many independent schools, with the potential to disrupt the education of their students."
The government has also announced that the state's domestic timber industry will close at the end of this year.offers $200 million to help workers in this industry transition to other jobs.
Budget papers confirmed many measures highlighted in recent weeks, including increases in business premiums for WorkCover.
The Opposition says the budget is causing "pain" for all Victorians
Opposition Leader John Pesuto slammed the Andrews government for the tax hike, saying Victorians paid the price for Labor's "incompetence".
"This is a bad budget. It's ugly," Pesuto said.
"He visits pain on every Victorian."
Shadow treasurer Brad Rowswell said only Labor could introduce new taxes and job cuts but carry a higher net debt.
"There's a reason today's budget is printed in red, because it's not good news for any Victorian," Rowswell said.
Mr Rowswell also said land tax increases would worsen the state's financial crisis.
"This is a tax on renters. This will make it more difficult for people who can afford to enter the rental market to enter less," he said.
"The measures introduced today will make it very difficult for young, vulnerable people who are just asking for a roof over their heads."
Millions for flood recovery
The budget includes an additional $677 million for ongoing flood recovery, on top of the $1.8 billion promised last year.
This includes $45.9 million for immediate emergency response costs, $7.1 million to support consultants in carrying out impact assessments and more than $23 million to repair VicSES emergency hubs in Rochester and Heathcote in Central Victoria.
The State Government has also committed $234 million in additional flood recovery funding for programs which are expected to be part-funded by the Commonwealth but have yet to be agreed.
Details of funding for the Commonwealth Games project were missing from the state budget, but a government spokesman said the state's $2.6 billion commitment outlined in last year's budget stood.
The budget also included $601 million to build 23 VLocity trains and $219 million for additional V-Line service, including additional weekend service on major regional train lines.
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