The Andrews government has made tough decisions in Tuesday’s Victoria state budget to reduce its record debt accumulated during the height of Covid, while funding its election promises.
Big businesses will taxed further to help repay the state’s debt, but the government has also introduced some relief, including employer insurance and shielding more from payroll tax.
Here’s a breakdown of the winners and losers in Victoria’s 2023 budget:
Winners
Small businesses
In an Australian first, Victoria will scrap business insurance duty over a 10-year period. The government estimates businesses will save about $3,200 on professional indemnity insurance or $2400 on fire and other special risk insurance over a decade.
The tax-free threshold for payroll tax will also be lifted from $700,000 to $900,000, benefiting 4,200 businesses. A further 22,000 businesses will pay a reduced amount of payroll tax. From 1 July 2025, the payroll tax-free threshold will increase again to $1m.
Kindergartens and schools
The government will provide $1.4bn for its free kindergarten program and $1.6bn for its new three-year-old kindergarten scheme. The government will also inject $618m to build nine new schools in metropolitan Melbourne.
Healthcare
The government will inject $320m in funding for infrastructure works that includes preparing for a new emergency department at Queen Elizabeth II hospital in the eastern suburbs and a new hospital in West Gippsland.
Additionally, the government has committed $286m for women’s health, including $65m for boosting surgeries to treat debilitating endometriosis, $58m for 20 new women’s health and a dedicated Aboriginal-led women’s clinic.
Native forests and the State Electricity Commission
Victoria will ban native forest logging from the start of next year, bringing forward a commitment to phase it out by the end of the decade. It comes amid a court challenge against the state-owned timber agency VicForests over the protection of endangered species, which the treasurer, Tim Pallas, cited when explaining the decision to bring forward the end of the industry.
The government will also spend $1bn to revitalise the state-owned State Electricity Commission to boost jobs in renewable energy, as promised in Labor’s election campaign.
Losers
Big businesses
Big businesses will be hit by a 10-year Covid debt levy to help pay back the record borrowing the government undertook during the pandemic.
From 1 July, large businesses with a national payroll above $10m year will pay additional payroll tax. A rate of 0.5% will apply for businesses with a national payroll above $10m and businesses with a national payroll above $100m will pay an additional 0.5%. The additional rates will be paid on the Victorian share of wages above the relevant threshold and are estimated to raise $3.9bn.
Public service workers
Up to 4,000 jobs will be slashed from the Victorian public sector, but no frontline workers such as nurses or teachers will be affected. The government is aiming to bring the state’s public service – representing a fifth of the state’s workforce – back to pre-pandemic levels, with $3.6bn in anticipated savings. The savings will include reducing corporate and back-office functions and cutting labour-hire and consultancy costs.
The estimated public sector wage bill is $35.2bn (exclusive of superannuation), compared to $33.4bn this financial year. The increase is due to a raise in the public sector wage cap increasing from 1.5% to 3%.
Property investors
From January 2024, Victorians who currently pay land tax will be hit with an additional annual fee of $500 for landholdings worth between $50,000 and $100,000 and $975 for land worth between $100,000 and $300,000. For land worth more than $300,000, the $975 fee plus an additional hike of 0.1% will be charged. Family homes will remain exempt from land tax.
Pallas said 860,000 Victorian landowners will be affected, who will pay an average of $1,300 in additional taxes. He justified the hike by pointing to the land values increasing by 84% in the past decade. Rents have also increased by 25% over five years.
“These higher rents are due to effectively the laws of supply and demand at play, and then delivering a windfall to landlords. We think that it’s fair that Victorians with multiple properties make a modest contribution to repaying Covid debt,” Pallas said.
Private schools
From July 2024, high-fee private schools will no longer be exempt from payroll tax, which will raise $422.2m over three years. Budget papers estimate this will affect about 110 of the state’s most exclusive schools – or the top 15% by fee level. They currently don’t receive capital funding from the government.
Major projects
With an extensive federal infrastructure review under way, infrastructure projects across Victoria have been plagued with further uncertainty.
The M80 Ring Road Upgrade, scheduled last year to be constructed by the first three months of the year, now has no set completion date and no funds allocated over the forward estimates. The North East Link – scheduled last year to be completed in the final three months of 2028, has no completion date and no earmarked funds.
The West Gate Tunnel project – that will provide an alternative to the West Gate Bridge – is still on track to be completed by the end of 2025. The Metro Tunnel project is still scheduled to be completed in the final three months of 2025. The Geelong Fast Rail and Airport Rail projects have no estimated completion dates.
Any delay to the Geelong Fast Rail will push back electrifying trains in Melbourne’s west.
Native timber workers
With the phasing out of native logging brought forward, timber workers will face job uncertainty.
The government will invest $200m over the next four years to help workers transition into new industries. Every affected timber worker will be offered free retraining and every timber family in financial stress can apply for financial support.
Pallas said he had a “great degree of sympathy and concern” for forestry workers and communities.
“We don’t take any satisfaction in this,” he said.
Commonwealth Games
No additional funding has been set aside for Victoria’s 2026 Commonwealth Games. The government has estimated the major sporting event will cost at least $2.6bn and is hoping the federal government will contribute.
The commonwealth’s budget this month did not include any money for the event. But the premier, Daniel Andrews, said he would not let the Albanese government off the hook.
