Victoria state budget slides into deficit but Treasurer insists surplus coming

The state Treasurer insists a surplus is coming, despite opposition claims the Andrews government has ‘run out of money’.

Daniel Andrews’s government insists a budget surplus will be delivered by next financial year. Picture: Nicole Garmston

Victoria’s budget has gone into deficit by almost $1 billion, but state Treasurer Tim Pallas says the plunge into the red is only temporary, and his mid-year budget update, due next month, will maintain the forecast of a surplus for the 2019-20 financial year.

Mr Pallas’s financial report for the September quarter, tabled in parliament on Friday, reveals the state has gone into deficit by $805 million, despite being $807m in surplus this time last year.

The news follows an Auditor-General’s report released earlier this week, which found Victoria’s wages bill had ballooned by 40 per cent to $26.6 billion over the past five years, with debt state debt increasing by 26.4 per cent, or $13.1bn, over the 2018-19 financial year.

State debt is set to increase by a further $29.7 billion over the next four years, as the Andrews government continues to borrow cash to fund major infrastructure projects.

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Mr Pallas maintained Victoria’s budget was “holding up quite nicely”, despite national and international headwinds, citing economic data released this week by the Australian Bureau of Statistics.

“We’re performing something like 60 per cent stronger than the national average in GDP growth, and we have the lowest unemployment rate, equal with NSW,” he said.

“What the deficit in this quarter’s figures tells us is that this quarter isn’t the quarter when most land tax is collected.

“It is a trap for young players to get caught up in quarterly figures. Essentially you need to disaggregate those figures and satisfy what the inputs and the outgoings are.

“We’re pretty confident that while the revenues have declined, and that’s clear from our stamp duty writedowns and our GST projections, the state continues to operate sustainably and remains financially well-positioned.”

Victorian Treasurer Tim Pallas. Picture: AAP

Asked whether Victorians could still expect to see a surplus projected in next month’s mid-year budget update, Mr Pallas said: “You can indeed.”

Opposition treasury spokeswoman Louise Staley said the financial report was “further confirmation that Labor cannot manage money or projects.”

“Victoria’s budget is in the red and is there for all to see,” Ms Staley said.

“To run an $805 million budget deficit over just three months is just staggering. And now that they have run out of money, they will come after yours. This is Labor.

“Tim Pallas said our grandchildren would be paying off this debt, and at this rate their grandchildren will still be paying it off.”

In the September quarter financial report, Mr Pallas warns that caution should be taken in interpreting the deficit, given the “significant impact of the uneven recognition pattern of various major revenue streams”.

Mr Pallas lists land tax, the fire services property levy, commonwealth grants and dividends from public corporations as revenue streams which should not be used to project an outcome for the full year.

Revenue for the quarter totalled $16.5bn, or 23.2 per cent of the full year budget.

“This is consistent with previous years and expectations for the current year to date, due to the timing of certain revenue items,” Mr Pallas wrote.

He said land tax recognition was $782m below the pro rata budget, because the majority of land tax is billed and recognised in the March quarter.

Opposition treasury spokeswoman Louise Staley. Picture: Andy Rogers

In contrast, the Fire Services Property Levy is tracking at $506m above the pro rata budget due to its billing in the September quarter.

Grant revenue is $701m below the pro rata budget, primarily due to the timing of expected contributions from public financial corporations, and dividends from public non-financial and financial corporations are lower than the pro rata budget for the quarter as they are typically declared during the second and fourth quarters of the relevant financial years.

Significant expenditure categories include employee expenses, which are tracking at close to pro rata for the September quarter, at 25.1 per cent of the published budget.

“Against a backdrop of a recent downturn in the property market and heightened global uncertainty, the Victorian economy is performing well,” Mr Pallas said.

“This performance was reflected in the June quarter national accounts, which show Victoria’s state final demand expanded 1.9 per cent over the year to June 2019.

“While this represents a slowdown in growth compared with recent periods, it is still almost double the national average.”

Mr Pallas said high population growth and low interest rates were supporting economic activity.

“Public demand has been a key contributor to growth, supported by the government’s strong and sustained pipeline of infrastructure spending,” he said.

“Labour market conditions remain positive, with solid employment growth, record levels of labour force participation and a low unemployment rate.

“Victoria’s employment increased by 103, 200 persons over the year to September 2019, the largest increase of all the states.”