Victoria records budget deficit blowout of $19.5bn

Victoria’s budget update has revealed a massive deficit blowout to to $19.5bn due to Covid lockdowns — but Treasurer Tim Pallas says the state is set for a major comeback.

Treasurer Tim Pallas has defended the budget deficit because support for businesses and Victorians was needed during lockdowns. Picture: Daniel Pockett

Victoria’s budget deficit has blown out by $7.9bn, but Treasurer Tim Pallas has tipped the state is starting a major economic recovery.

In an update to the state budget released on Friday, it was confirmed lockdowns triggered by a wave of the Delta Covid had hit Victoria’s finances.

In 2021-22, the deficit has blown out by $7.9 billion to $19.5bn.

Over the next four years, the deficit is tipped to be bigger by an average of $0.9bn.

But Mr Pallas said the state would make a major comeback that would result in the government collecting surging revenues from land tax and other sources.

Tim Pallas says employment figures are strong. Picture: Daniel Pockett

The amount of money collected from stamp duty is expected to surge by nearly a fifth in 2021-22, taking it to $7.7bn.

Land tax will rise by nearly a third to $4.3bn while rego and other car taxes were set to increase moderately to $1.8bn.

Payroll tax has taken a hit of 0.8 per cent because of incentives to help struggling businesses while the government’s new mental health levy has also been slightly downgraded now that the state’s economic growth will happen slightly later.

Mr Pallas defended the deficit because support for businesses and Victorians was needed during lockdowns triggered by the Delta variant.

“No government has the clarity and foresight that we can predict exactly how the pandemic will operate going forward,” he said.

“We’ve had to make those investments quite obviously to keep the community safe and resource our pandemic response.

“If we hadn’t done that then the resilience and enduring nature of the recovery would have been compromised.”

The unemployment rate is expected to average 4.5 per cent this financial year, lower than forecast, and maintain at this level.

Growth in gross state product will happen later, expected to peak at 4.5 per cent in 2022-23

Mr Pallas said employment figures for Victoria were strong and the state was on track to reach its target of creating 200,000 jobs.

What we do know is that there is a very substantial amount of potential energy in the economy, largely due to the impact of lockdowns (and) the embedded levels of savings within households right across the Victorian economy.”

But he conceded other sectors would still be under pressure and need support.

“The most obvious area where there will be a need for continuing support and assistance eis in our events industry,” he said.

“Of course tourism will be under pressure and I want to see every Victoria doing what they can to get out and about in Victoria.

“We’ll talk with other organisations such as the Victorian chamber and others to see what their thoughts are.”

The budget update highlights that a massive pipeline of building projects across Australia would continue to put cost pressures on Victoria’s own agenda, with resources and labour shortages potentially driving further blowouts.

Mr Pallas said restrictions had created timeline challenges for some, while the government’s level crossing removal strategy was ahead of schedule.

“Yes, there’s been pressure on those projects,” he said.