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 Victorian Budget 2016-17
 
27 April 2016
 
OVERVIEW
 
Victorian Treasurer Tim Pallas handed down the second budget of the Andrew’s Labor Government today, confirming its commitment to proceed with the Melbourne Metro Rail Project – Melbourne’s second rail loop tunnel – by guaranteeing $10.9 billion over the life of the project, and committing $2.86 billion of this amount in the Budget forward estimates, without the need for future Commonwealth contributions.
 
The 2016-17 Budget includes $12.4 billion in new capital investment accounted for by realising the 50-year lease of the Port of Melbourne in the forward estimates, alongside a strong focus on social policy. In particular, the Budget allows for immediate implementation of an initial 65 recommendations from the Royal Commission into Family Violence as a “first step” by way of a previously announced allocation of $572 million to 2018-19.
 
Under the theme of “getting it done,” Treasurer Pallas said today’s budget “strikes a balance between saving for the future and investing in the things we know we need”. In doing so, the Treasurer has linked the Government’s job creation agenda with targeted initiatives to enhance localised employment opportunities and build or improve state assets receiving capital investment. The Treasurer has recognised that higher demand is being driven by strong population growth, which remains steady at 1.8 per cent per annum in this Budget.
 
Consequently, the Budget upwardly revises a $2.9 billion surplus for 2016-17 from $1.5 billion in the Mid-Year Budget Update (slightly higher than the $1.4 billion estimate from the May 2016 budget forecast).
 
Whilst confirming Victoria’s AAA credit rating, the Budget estimates a decrease in gross state product (GSP) from 3.0 per cent in 2016-17 to 2.75 percent in 2017-18, with average expenditure growth forecast at 3.3 per cent, slightly under average revenue growth of 3.4 per cent. This accords with decrease in net debt to gross state product, dropping as an average below 5 per cent over the next four years.
 
There have been many other improvements in key economic indicators since the Mid-Year Budget Update of November 2015. Taxation revenue in 2016-17 has been strengthened by uplifts from stamp duty on property sales ($6 billion up from a forecast $5.32 billion), and the benefits of a growing workforce of more than 3 million Victorians in employment contributing to a payroll tax windfall (up 5.3 per cent in 2016-17). Stamp duty revenue has also been bolstered by the Government’s decision to increase the stamp duty surcharge on foreign buyers of residential real estate from 3 per cent to 7 per cent from 1 July 2016, and a further $250 million over four years is being raised through lifting the royalty rate for companies mining brown coal in Victoria three-fold, to 22.8 cents per gigajoule of energy.
 
In focussing on capital investment as part of this Budget, the Government has committed:
  • $1.46 billion to the Western Distributor tolled tunnel off the West Gate Freeway
  • $875 million for an extra 28 high capacity trains to prepare for the Metro Tunnel
  • $105 million to purchase an extra five X’Trapolis trains
  • $140 million for the Hurstbridge line upgrade
  • $518 million for the Ballarat line upgrade project
  • $169 million to redevelop the Goulburn Valley Health Shepparton campus
  • $61.3 million for major infrastructure works at the Footscray and Sunshine hospital sites
  • $924 million to build new schools and upgrade existing schools, including $92 million to establish Tech Schools in regional and semi-regional hubs.
 
KEY PARAMETERS
  • A budget operating surplus of $2.9 billion in 2016-17 ($9.2 billion over 4 years)
  • Net debt is forecast to fall from 5.9 per cent of GSP in 2016-17 to 4.8 per cent by June 2020
  • Economic growth of 3 per cent in 2016-17, falling to a forecast 2.75 per cent in the out years
  • Budget estimates expenditure growth of 3.3 per cent on average per year – forecast revenue growth remains at 3.4 per cent 
  • Unemployment currently stands at 5.7 per cent and is projected to fall to 5.5 per cent by 2018-19
  • Victoria’s population is growing at a rate of 1.8 per cent.
 
MAJOR EXPENDITURE
 
Economic Development, Jobs, Transport and Resources
 
The 2016-17 State Budget confirms allocation of $12.4 billion in new capital investment, including over $1.9 billion to develop the metropolitan transport system. 
 
Key initiatives include:
  • $1.46 billion over four years to fund the Western Distributor, an alternative to the West Gate Bridge
  • $260 million in road improvements for regional Victoria
  • $2.9 billion in capital funding to construct Melbourne’s new Metro Tunnel
  • $1.3 billion investment in rail projects across regional Victoria, including $280 million for 27 new VLocity carriages and $218 million for the Ballarat line upgrade project
  • $875 million to purchase 28 high capacity trains to prepare for the Metro Tunnel
  • $105 million to purchase 5 additional X’Trapolis trains to be used across the metropolitan network
  • $588 million to extend the South Morang line to Mernda
  • $140 million to upgrade the Hurstbridge line
  • $152 million for Victoria’s first Creatives Industries strategy, Creative Victoria, which aims to create jobs, develop local talent and grow the creative and cultural economy
  • $116 million allocated to the Investment Attraction and Assistance Program to help create more jobs
  • $111 million investment in the Future Industries Fund to help enhance the competitive advantage of Victoria’s six priority growth sectors (medical technologies and pharmaceuticals; new energy technologies; food and fibre; transport, defence, and construction technologies; international education; and professional services)
  • $66 million increase in funding for the Victorian Government Business Office network located around the globe
  • $4 million to establish the Asia Gateway to assist businesses wanting to export to China.
 
Health and Human Services
 
Health expenditure will total $2.9 billion and includes:  
  • $335 million one-off investment over four years to tackle elective surgery waiting lists, and $20 million capital works funding
  • $169 million for the redevelopment of the Shepparton Hospital which will include three new operating theatres, two new wards and an extended emergency department
  • $61.3 million for major infrastructure works at the Footscray and Sunshine hospitals
  • $135 million to commence construction of the Victorian Heart Hospital at Monash University in Clayton
  • $200 million for the Regional Health Infrastructure Fund
  • $30 million to establish a real-time prescription drug monitoring system.
 
Education and Training
 
The Budget has committed $1.1 billion for education and training, including:
  • $924 million investment for new and upgraded schools, including:
    • $385 million for upgrades to schools in poor condition
    • $287 million to construct new schools
    • $63 million to relocate classrooms
    • $28 million to remove asbestos
  • $92 million in capital funding to establish 10 new “tech schools”, and $24 million for ongoing running costs
  • $53 million for the establishment of Jobs Victoria
  • $49 million to support higher education, training and skills.  
 
Environment and Climate Change
 
The Budget provides the following funding to protect our natural environment:
  • $74 million to support the Forest Fire Management’s capability
  • $29.4 million to improve biodiversity and help protect threatened species
  • $20 million to upgrade parks.

Treasury and Finance
 
Key initiatives in the Treasury, Finance and Justice portfolios include:
  • The payroll tax threshold will be gradually lifted from $550 000 to $650 000 over the next four years
  • From July 1 2016, businesses that take on a retrenched apprentice or trainee will receive full payroll tax relief on those wages
  • From 1 July 2016, the stamp duty surcharge for foreign buyers of residential real estate will increase from 3 per cent to 7 per cent
  • The land tax surcharge on absentee owners will increase from 0.5 per cent to 1.5 per cent from the 2017 land tax year.

Justice and Regulation
 
Justice and Regulation initiatives focus on police, emergency services and community safety, with initiatives in the 2016-17 Budget including:
  • $596 million public safety package, including 406 extra police
  • $572 million over two years to implement recommendations from the Royal Commission into Family Violence
  • $228 million to support emergency services
  • $414 million to strengthen the management of dangerous criminals
  • $19.4 million to fund crime prevention strategies, including grants for CCTV and upgrades to lighting and strengthened urban design to improve community safety
  • $84 million to respond to the Harper Review into the management of serious sex offenders.
 
FURTHER READING
 
About GRACosway
GRACosway is Australia's leading public affairs and corporate and financial communications counsel. Our integrated suite of services provides public policy, communications, regulatory, issues management, and media relations advice to a range of domestic and international clients across all industry sectors. From offices in Sydney, Melbourne, Brisbane, Adelaide, Canberra, and Perth (through GRA Everingham), GRACosway's clients benefit from the combined experience, expertise, and strategic perspective of our team in addressing complex and commercially sensitive projects. For more information head to gracosway.com.au
 
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