Victorian budget 2021: Labor budget a ‘risk to recovery’
The Andrews government unveils a $3bn payroll tax hike, a move Josh Frydenberg says will hit families and jobs.
The Victorian government has unveiled a $3bn payroll tax hike to pay for a major expansion in mental health services, a move Josh Frydenberg and business groups warn will undermine the national economic recovery and cost jobs.
Victorian Labor Treasurer Tim Pallas, handing down his seventh budget on Thursday, revealed the state’s 9000 largest employers would be hit with a surcharge to fund the government’s signature $3.8bn mental health package.
The budget forecasts a deficit this financial year of $17.4bn — lower than the $23.3bn previously expected — and shows net debt is set to reach $156.3bn by June 2025.
Public sector wages are set to rise 17.8 per cent in that period, including an extraordinary 9.6 per cent in the next financial year, with Mr Pallas bluntly conceding those increases were not sustainable.
Mr Frydenberg told The Australian the tax increases — including a $2.4bn increase to property taxes announced at the weekend — would hit families and jobs.
“The Morrison government has pulled out all stops to support Australian families and businesses in their time of need with an unprecedented amount of economic support, more than double what all the states and territories have committed combined,” the Treasurer said.
“The result is that Australia’s economic recovery is under way — a recovery that should not be undermined by high-taxing Labor governments whose policies to whack families and businesses will cost jobs. This is the worst possible time.”
The new 0.5 per cent payroll surcharge will be levied against businesses with more than $10m in wages across the country from 2022, while companies with payroll bills higher than $100m in Victoria will pay an additional 0.5 per cent on top of that.
That money will be set aside in legislation for mental health, and Mr Pallas said it would affect fewer than 5 per cent of employers.
“Many big businesses have continued to profit through the pandemic, pocketing taxpayer subsidies along the way,” Mr Pallas said. He said he was asking businesses to “help out their community”.
“We might think the cost of fixing this system is too great, but the cost of not fixing it is far greater,” he said.
Business Council of Australia chief executive Jennifer Westacott said the surcharge set “a very dangerous precedent of fiscal repair which ultimately harms growth”.
“While we welcome mental health reform, which is much needed to deal with systemic issues and the devastating impact of a long and disproportionate lockdown, an approach that pits some Victorians against others by taxing jobs makes everyone a loser,” Ms Westacott said.
“It doesn’t make sense to target employers with a payroll tax hike which will hamstring their ability to create jobs and drive the recovery. These are the same employers who kept workers on their books during more than 100 days of lockdown, paid them when they couldn’t work because of government decisions and kept services running. The nation, through JobKeeper, and many businesses footed the bill during Victoria’s record-length lockdown. Now they look set to pay again through investment-killing taxes and slower economic growth.”
Other corporate leaders, including Wesfarmers chief executive Rob Scott, also warned that the additional levy on payroll tax could affect employment. He described the move as “very disappointing” and said “it diminishes Victoria’s standing as a place to do business”.
The surcharge rates will be paid on the Victorian share of wages above the relevant threshold, with exemptions for private schools, hospitals, charities, local councils and wages paid for parental leave.
The Australian understands universities — struggling amid a lack of international students — have not been granted such an exemption.
The tax is expected to raise $387m in 2021-22 and an average of $843m a year over the forward estimates.
The government published details of capital works spending which showed 117 major projects worth more than $100m had blown out by $3.8bn between the 2019-20 and 2021-22 financial years. There was a $3.6bn cost blowout across 1141 smaller projects over the same period.
However, significant cost blowouts expected on some signature projects remain unaccounted for, with no figure given alongside estimated expenditure for the $16bn North East Link. The government says the figures will be confirmed when a contract is awarded mid-year.
Overall, tax revenue is forecast to be up by $3bn to $26.6bn, and $9bn over the forward estimates. This includes a 12.7 per cent rise in stamp duty to $6.7bn, 15.2 per cent rise in land tax to $4.2bn and a 7 per cent increase in motor vehicle taxes to $2.9bn.
Credit ratings agency S&P said the budget showed the effects of last year’s 111-day lockdown. “We are seeing signs that the state is well placed to begin its fiscal repair in the coming years, and we believe the heightened debt stock levels will be manageable due to the low interest-rate environment,” S&P said.
Amid the creation of more than 200,000 jobs since September, Victoria’s economy has recovered significantly, with the state’s final demand growing 6.8 per cent in the September quarter — more than double the national average.
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