Victoria’s long Covid taxes to weaken state economy

Not even loquacious Victorian Premier Daniel Andrews can talk his way out of Victoria’s calamitous financial position, that was exposed in Tuesday’s budget. In saddling Victorians who own two or more properties and businesses with payrolls of more than $10m with a decade of “temporary” extra land and payroll taxes, Treasurer Tim Pallas tried to justify the revenue grab by claiming: “The Covid debt is a dead weight on the economy.” It is. And it is the government’s fault for inflicting the world’s longest Covid lockdown outside China, plus a curfew, on its people – far beyond what states such as NSW imposed. What Mr Pallas has failed to mention is that the new taxes, levies and charges also will be a dead weight, discouraging investment and making Victoria a less attractive place to do business. While the state economy is forecast to grow by 2.75 per cent this financial year, that rate is expected to slow to an average 2.4 per cent a year in coming years, suggesting the last thing its economy needs is significantly higher taxes to discourage investment.

Given the Andrews regime’s belief in big government, it is no surprise that, faced with a deficit and debt crisis, it reached for the tax lever again. The payroll tax grab from larger companies comes on top of the existing $3bn mental health levy imposed in 2021.

According to the peak body representing accountants, the budget has made Victoria Australia’s “least attractive state to run a business or buy an investment property”. That could have serious implications for economic growth. CPA Australia senior tax policy manager Elinor Kasapidis is right when she says Victorians are being forced to pay for decisions made during Covid and the government has made the wrong decisions on how to manage the budget. “You need to support businesses and investors,” she said. “You don’t continue to spend when you’re in a dire position.”

Real Estate Institute of Victoria chief executive Quentin Kilian said the tax grab was “a horror move to increase land taxes yet again and to reduce the threshold, which means that a lot more people in Victoria are going to be captured by land tax”. At the same time, the budget offered nothing to increase supply or to encourage investors to return to the market to ease the supply of properties available for rent. Owners with more than one property can expect to pay an average of $1300 extra a year per property. As mum-and-dad investors struggle with higher interest rates, most of that is likely to be passed on to tenants, at a time when rents have soared. It also remains to be seen how much extra in school fees parents of students at 110 non-government schools, or around the top 15 per cent by fee level, will pay to cover the government scrapping the schools’ payroll tax exemption next year.

In a sign of the depth of the financial crisis in our second-most populous state, Victoria’s debt is forecast to continue to increase, despite the 10-year tax grabs stinging about 4000 businesses and 860,000 landlords and holiday-home owners. The state’s net debt is heading towards $171.4bn by 2026-27, with no plans set out to pay back borrowings that are unrelated to the pandemic. There is no shortage of those, as Rachel Baxendale reported on Tuesday. The Victorian Department of Treasury and Finance attributes less than a third of the state’s projected debt level of $116bn by the end of the current financial year to Covid-related spending. Billions of dollars in blowouts in the costs of infrastructure projects, such as the Suburban Rail Loop, the West Gate Tunnel and the Melbourne Airport rail link, are a major factor. So is growth in the public service wages bill, driven by the power of public sector unions in influencing the Andrews government.

In his budget speech, Mr Pallas showed himself to be a master of illusion. The government hoped to raise $2.1bn across four years, he said, through public service “savings and efficiencies”. The government was “doing its bit, restoring the public service back towards pre-pandemic levels”, while not affecting frontline workers. But the budget papers show the public service wages bill continuing to spiral, as it has since Labor was elected, when the wages bill was $19bn. After being forecast to reach $26.2bn this financial year, the bill will come in at $35.5bn, rising to $39.8bn a year by the end of the forward estimates. It also spoke volumes that less than three years from the 2026 Commonwealth Games the event did not rate a mention in the Treasurer’s speech. It raises the question: when will the federal bailout happen?

If Opposition Leader John Pesutto and his Treasury spokesman, Brad Rowswell, can manage to look outward rather than inward at the Liberal Party’s woes, they have a smorgasbord of issues with which to put the Andrews government under pressure. The “temporary” tax impositions will serve for a decade as a nasty reminder to millions of Victorians of Labor’s mismanagement of the pandemic and its financial aftermath.