Treasurer Tim Pallas’s Budget update reveals cut to surplus
Victoria’s Budget surplus has been slashed dramatically, with Treasurer Tim Pallas defending the move and blaming infrastructure cost blowouts and weaker GST revenue for the move.
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Victoria’s Budget surplus has been slashed by almost 40 per cent as the state government ratchets up debt in the face of a subdued national economy.
Treasurer Tim Pallas’s mid-year Budget update, released this morning, reveals this year’s surplus is now forecast to be $618 million — down from $1 billion.
Mr Pallas defended the budget writedown, saying there are “challenges”, including the national economy and lower consumer spending that impacted GST revenue.
“We are seeing a softening the national economic position, we are seeing a reduction in consumer sentiment and spending and as a consequence I have written off about half a billion dollars this year and about $1.1 billion going forward in terms of GST receipts,” Mr Pallas said.
“Victoria’s economy still remains in a solid position, but sure there are challenges we will need to confront and we continue to do that.”
Next year’s expected $1.5 billion surplus has been shaved back to $1.2 billion.
Net debt is also increasing faster than expected and will now reach $57.8 billion by 2023 — totalling 10.5 per cent of gross state product — compared to the Budget’s initial forecast of $54.9 billion.
The government said this was a prudent and manageable move which would not affect Victoria’s triple-A credit rating.
The Budget update said the reduced surplus was due to a reduction in expected GST revenue from the Commonwealth, fuelled by “weaker national consumption and dwelling investment”.
New spending was also a factor, including cost blowouts on infrastructure projects including Monash Freeway and Mordialloc Freeway works, a $120 million transition package for the native forestry industry, cladding rectification works, additional drought relief and extra spending on schools.
When asked about the capital works program hitting $15.8 billion, up since May, Mr Pallas denied these related to accelerated projects including more levels crossing removals and further investments.
“In terms of the additional costs for projects, I don’t think I have been shy — there are three things occurring in our market that are occuring,” he said.
“One is the situation where resources costs are increasing because of increased demand for those resources and materials to build.
“We also recognise we do have a skills shortage and we are in competition with the other eastern seaboard states that’s having pressure on costs and finally we are seeing a lack of hunger in the market for competitive pricing around projects.”
These extra costs were partially offset by extra property tax revenue as the housing market improved this year, as well as the Commonwealth bringing forward spending on some transport projects.
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When it came to wages, Mr Pallas reconfirmed “we have to be firm about our wages policy” and said the 2 per cent cap remained in place.
The update concluded Victoria’s economy was still performing strongly after a fifth consecutive year of above-trend growth.
But it warned the US-China trade war was causing “considerable uncertainty” about the global economy.
Mr Pallas also announced a base and efficiency review across all government departments to ensure resources were being managed well.
However, Shadow Treasurer Louise Staley hit out at the move saying the state government now appeared to be preparing to “cut” the number of workers in the public sector to bring their wage bill down.
“They need to start telling Victorians and those who work for them what they are going to do,” she said.
“This is a fake surplus by a government that can’t manage projects and certainly can’t manage money.”
Meanwhile, Opposition Leader Micheal O’Brien pointed to the $890 million taken from the TAC earlier this year saying it was propping up the surplus.
“It is a fake surplus,” he said.