The Victorian government is axing its last remaining incentive for electric vehicle users and is introducing a new levy to fund emergency and disaster responses, as the treasurer says efforts to reduce debt are beginning to bear results.
The treasurer, Tim Pallas, on Friday released the state’s mid-year budget update, which shows the 2024/25 deficit is expected to grow to $3.6bn, up from a forecast $2.2bn in May.
However, net debt has dropped from a forecast $178.3bn to $155.2bn, with modest improvements across each year of the forward estimates.
Pallas announced further efforts to address the deficit, including the removal of the annual $100 registration discount for zero and low-emission vehicles, while increasing a congestion levy targeting car owners in inner Melbourne.
From 1 January, registration fees for electric vehicles will return to the standard light vehicle registration rate, which is estimated to add $165m in revenue over the next three years.
Pallas said electric vehicle uptake had “quadrupled” and incentives were no longer needed.
The government is also replacing its fire services property levy with an “emergency services and volunteers fund” from 1 July, which will be paid by property owners.
The fund – expected to raise $2.14bn over the next three years – will be directed to bodies like the Country Fire Authority, Fire Rescue Victoria and VicSES.
Pallas said the fund was a recognition that fires, floods and storms are becoming more frequent and expensive.
“We have to accept that we are living in a changing and more dangerous environment, and we have to make provision for it,” he said.
The government’s congestion levy – a tax on off-street parking spaces in inner Melbourne and the CBD – will also increase from $1,750 to $3,030 in category one areas and from $1,240 to $2,150 in category two areas. The latter category will also be expanded to include suburbs off Hoddle Street and Punt Road.
Pallas said the change would generate about $307m in revenue.
Despite the increased revenues, the treasurer said the increased deficit in the state’s finances was due to an additional $1.5bn spend on hospitals.
But he said the overall update showed his “sensible, disciplined approach” to repairing the state’s budget was “working”.
“Victoria is the only state in the nation that is seeing net debt as a proportion of the economy fall within the estimates period,” Pallas told reporters.
However, the opposition leader, John Pesutto, described the latest announcements as a “massive tax grab” and the government had failed to demonstrate a “proper plan to stabilise and reduce debt”.
The new and increased levies come on the heels of an economic growth statement released this week, which the premier, Jacinta Allan, said was designed to cut red tape and make the state more attractive to businesses.
But some economists have warned the government’s measures may not be enough to restore fiscal stability, including Saul Eslake, who has argued its strategy is overly reliant on growth and does not adequately address underlying structural issues.
“Don’t believe Victoria can grow its way out of its budget woes,” he told Guardian Australia.
“If they want to get serious about this, we need to see some combination of reducing operating expenses, curbing infrastructure spending, raising revenue or selling assets.
“There’s a range of tough political choices they’re going to have to make.”
Eslake recently published an analysis of Victoria’s finances in the Australian Financial Review, in which he argued the state had gone from the richest and most powerful state in the country to among the poorest performing.
But his analysis was met with criticism from the Australia Institute’s chief economist Greg Jericho, who along with his colleague David Richardson responded in a piece titled, “Sorry media, neither Victoria’s budget nor its economy is in bad shape”.
“Victoria now has assets of $412.9bn, much higher than its total liabilities of $177.5bn giving Victoria a net worth of $235.4bn,” Jericho wrote.
“Victoria’s public net worth increased 24% from 2020-21 to 2022-23 – nearly 3 times the level of inflation in the Victorian economy over that period.”
Eslake accused Jericho of “cherry picking data”, though David Hayward, an emeritus professor of public policy at RMIT University, agreed the media and economists had an “unbelievable fixation on debt”.
“If you look at any analysis of a business, nobody ever just concentrates on debt, they look at what the debts being used for,” Hayward said.
However, he urged the government to slow its pace of infrastructure development and reconsider its reliance on public-private partnerships, which he said often led to “huge cost blow outs” on major projects.
“They don’t need to cancel anything. Just slow it down,” he said.
Monash University economist, Zac Gross, said the truth about Victoria’s economic situation “lies somewhere in the middle between the doomsayers and [the] It’s Always Sunny in Victoria crowd”.
“The economy is still remarkably robust but the budget is under strain,” he said.
Gross said the Victorian government’s plan to increase housing by loosening of regulations around planning and zoning could improve its bottom line.
“If we can just add more people, more taxpayers, then we might not have to cut spending and increase taxes as much,” he said.
