Victorian budget 2023 as it happened: Big business, private schools and government jobs in firing line as Treasurer details COVID repayment plan

Our live coverage of the 2023-24 state budget has now come to an end. Thanks so much for joining us today, it’s been fantastic to have your company.

Let’s take a quick look back at the key information from today’s budget papers:

• Victoria’s debt will continue to rise from $135.4 billion in 2023-24 to $171.4 billion by 2026-27, despite the government clawing back more than $10 billion in four years from the two tax hikes and public sector job cuts.
• The boost to payroll taxes and land taxes will collectively raise $8.6 billion over four years. Victorians with second homes or investment properties will pay a new flat rate tax of up to $975, plus an additional levy on the value of their land from January 1, 2024.

• Treasurer Tim Pallas vowed on Tuesday to bring back the public sector towards pre-pandemic levels, revealing the government would slash up to 4000 public sector jobs over the next year. The cost-cutting measure forms part of a $31.5 billion COVID debt repayment plan.

• Regional Victorians will benefit from $2.8 billion in government spending over the next 10 years in a bid to fix the state’s roads, following the devastating October floods. Tuesday’s budget also committed an additional $677 million in other flood recovery measures.

• Victoria’s infrastructure agenda is taking 21 per cent longer to build than the government expected a year ago, blowing out by a combined $565 million as labour and material shortages bite.

• Commercial and industrial property buyers will no longer pay stamp duty in Victoria following announcement by the Andrews government that it would abolish the lump-sum payment in favour of an annual property tax in coming years.

Want to get across the highs and lows of today’s Victorian budget, but don’t have heaps of time?

Look no further, because state political reporter Sumeyya Ilanbey has prepared a short video summarising the key information from today’s state budget.

Watch the full 90-second wrap of today’s key revelations below.

Following the release of the 2023-24 state budget, Premier Daniel Andrews has promised that Victorian children will not pay for the debt built up by the state’s coronavirus pandemic measures.

Speaking to10 News First this evening, Andrews said that putting aside $31.5 billion over the next 10 years to pay off debt accrued to combat COVID-19 was the “responsible thing to do”.

Premier Daniel Andrews works the room during Tuesday’s state budget lock-up.Credit: Joe Armao

“This is exactly the right time to make sure we repay that COVID credit card that we had to go and borrow to save lives and to save jobs,” he said.

“We have to provide a plan to pay that money back, so that if something else confronts us, or an opportunity presents, we are in a position to be able to seize that [opportunity] or cope with that [problem].

“Our kids will remember the pandemic, but we will not make them pay for it.”

Our reporters Lachlan Abbott and Nicole Precel have spoken to a number of Victorians from different walks of life to gauge how they feel about today’s state budget.

Here are just some of their stories.

The family

Abdullah Altintop and Zeyneb Gokler are raising two kids in Melbourne’s outer north. The Wollert couple took advantage of the government’s kindergarten overhaul last year and their four-year-old daughter, Safiye, now attends for free two days a week. But they say it’s not enough to help Zeyneb return to work as a midwife at the Northern Hospital.

With six-month-old Salih now part of the family, Abdullah says he also still wanted to see more invested into education to help his children in the future, and suggested direct payments to parents could help squeezed family budgets.

“Anything that ... takes pressures off mums and dads is very helpful,” he says.

Zeyneb Gokler and Abdullah Altintop with their children Safiye, 4, and six-month-old Salih.Credit: Jason South

After the budget was released, the couple were disappointed, particularly with cuts to public servants, and thought there was limited further childcare help.

“It could’ve been better,” Abdullah says. “I don’t think they have balanced the right areas.”

However, they said it was “fantastic” to see $50 million spent on greater access to public fertility care, having used IVF themselves and incurring significant out-of-pocket costs.

Abdullah says it was good that nine new public schools for Melbourne’s fast-growing suburbs included one in Wollert, but he wouldn’t be sending his kids there because he was concerned with the broader public education system.

The second property owner

Leigh Powell, a small business mentor and strategist from East Brighton, says his holiday home on Phillip Island would be hit by the broadening of the tax on multiple properties.

“The state government’s raised considerable debt for its COVID-related support programs. That has to be repaid. I don’t have any doubt about that,” he says.

East Brighton resident Leigh Powell was philosophical about changes to how second properties and holiday homes were taxed. Credit: Justin McManus

The 69-year-old says “it would be silly” to expect things would go on as normal after the pandemic without a change to how people contribute to tax.

“Is it reasonable for one of the things to focus on people who have some capacity to pay? And is it likely to be the case if someone has a second, third or fourth home? I don’t think it’s an unreasonable cohort to seek from,” he says.

He says if the change resulted in additional charges in the thousands it would hurt, but “that’s the way it is”.

Powell says if it was a substantial increase in tax, then it may have people questioning whether they want to keep the property and pay the luxury tax of having a holiday home.

“I’m sympathetic to the fact that there’s a lot of people who are doing it very tough,” he says.

Powell had hoped large building projects would be trimmed temporarily to pay off pandemic debt and wanted more funding for domestic violence support and mental health services.

In 2023-24, the state government expects to bring in $89.2 billion in revenue, and to spend $93.3 billion, which equates to a deficit of $4 billion. But as you can see in the graph below, this is less than some of the deficits recorded during the depths of the COVID-19 pandemic:

By 2025-26, the government expects to be back in surplus, estimating that it will bring in $1 billion more than it will be spending.

The new COVID debt levies (there are some more graphs on them further down in the blog) are expected to help the state back to surplus, its first since 2018-19, as without the funds they are expected to raise the state would remain in deficit in both 2025-26 and 2026-7.

Victorian Treasurer Tim Pallas has just appeared on ABC Radio Melbourne and asserted increasing land tax wasn’t responsible for significant rental hikes across the state.

For general taxpayers with property holdings above $300,000, and trust taxpayers with property holdings above $250,000, land tax rates will increase by $975, plus 0.1 per centage point of the value of their landholding above $300,000.

Victorian Treasurer Tim Pallas photographed inside the state budget lock-up on Tuesday. Credit: Joe Armao

All current land tax exemptions will continue to apply, including those on the principal place of residence.

Pallas was pressed on increases in land tax by presenter Raf Epstein, who asked whether the treasurer was comfortable with rental rises resulting from additional costs borne by landlords.

“I think it’s a specious logic and I don’t think it’s not necessarily borne out by history. If you look in the last 12 months for metropolitan Melbourne, the advertised rental increases have been 25 per cent,” Pallas said.

“There’s 1.2 per cent of vacant properties in metropolitan Melbourne at the moment, and it probably means that [rental increases] are therefore a function of supply and demand, not about the costs that you carry.”

Pallas said he believed that rises in Victorian land tax did not play any “substantial role” in raising rents across the state.

“The market that every renter is buying into is a market that is saturated at the moment with people desperate to get into housing, and is a function of the lack of supply of appropriate housing in the market,” he said. “What I’m also saying is we recognise that that is a problem, but governments need to be part of that solution.”

Earlier today, we told you the Andrews government plans to end native forest logging early in Victoria, bringing forward its 2030 deadline to start the phaseout from January 1 next year.

CFMEU official Michael O’Connor, who represents timber workers, said up to 1000 jobs would be affected, and that it was “cheap” rhetoric from the government to insist that every worker would find a new occupation.

CFMEU official Michael O’Connor.Credit: Alex Ellinghausen

“It’s a shame that the Andrews government governs for Melbourne, Geelong, Ballarat and Bendigo,” he said.

“If you are in any other part of the state, you don’t get a look in. That’s a clear message from this decision today.”

He said the union was expecting a tough decision from the government, but was not consulted ahead of today’s announcement.

But Chloe Aldenhoven, from Friends of the Earth Melbourne, said today’s development was “fantastic news” for the state.

“This is huge for climate mitigation,” she said. “Keeping native forests intact was essential for tackling climate change.”

Private schools in Victoria will be stripped of their long-held exemption to payroll tax next year, netting the state more than $420 million in revenue over three years.

About 110 of the state’s highest-fee non-government schools will lose their payroll tax exemption from July 2024. The budget papers say the change will affect the top 15 per cent of highest-priced schools.

The education minister and the treasurer will have the discretion to exempt schools from the change, which is forecast to increase revenue by $134.8 million in 2024-25, rising to $140.3 million in 2025-26 and $147.1 million in 2026-27.

The change will bring affected non-government schools into line with the government school sector, which is not payroll tax-exempt.

It is too soon to say if schools will pass the tax increase onto families, but lobby group Independent Schools Victoria said the news had come as a shock and could force some schools to make a choice between raising fees and cutting services.

Michelle Green, chief executive of Independent Schools Victoria.

“It is likely to have a damaging impact on the operations of many independent schools, with the potential to disrupt the education of their students,” said Independent Schools Victoria chief executive Michelle Green.

It’s also worth taking a look at how some of the underlying economic forecasts that underpin the budget have changed over the past year.

When last year’s state budget was handed down on May 3, the consumer price index for the metropolitan Melbourne region was forecast to remain at about 2.5 per cent over the next few years. Last year’s estimates show up as a purple dotted line on the graph.

But even then, there were signs of rising inflation. Less than one week earlier, the ABS announced that inflation in the March quarter of 2022 was at its highest in more than a decade. With inflationary pressures rising, the same afternoon the state budget was tabled, the Reserve Bank announced its first interest rate rise in more than a decade, the first of many.

This year’s state budget was put together against a backdrop of high inflation and rising interest rates, and it shows in the updated inflation estimates (the orange line on the graph). It expects inflation of 4.25 per cent this year.

But the inflationary shock is expected to be short-lived, with inflation falling back into the safe 2.5 per cent zone into the following years, which is in line with what federal Treasurer Jim Chalmers has forecast in this year’s federal budget.

Industry groups have started reacting to Tim Pallas’ ninth – and to use his own words – most difficult budget.

Property Council boss Cath Evans says while she’s supportive of eradicating stamp duty on commercial properties, the additional tax burden on people who own a second property is of concern.

Property Council Victorian executive director Cath Evans.Credit: Justin McManus

“This will cause significant pressure on the Victorian economy,” she said. “There will be landholders who for the first time will be paying land tax.”

The Business Council of Australia (BCA) said the best way to pay down debt is through fiscal discipline and promoting measures that drive economic activity, but Tuesday’s budget sent the opposite message.

BCA chief executive Jennifer Westacott said the budget made it clear the Andrews government was willing to charge more for companies to do business in the state, at a time where “we need to be accelerating investment”.

“Victoria is already the highest taxing state in the country and the new COVID Debt Levy announced today means it will be even harder to invest in the state, let alone create new jobs or grow the economy,” she said.

But Emma King, from the Victorian Council of Social Services, said it was fair to raise revenue from wealthier Victorians.

“The reality is if you’re wealthy enough to own a home, you are doing really, really well,” she said.
Earlier today, Pallas denied that the additional taxation would be passed on to renters.