Victoria's election-year budget will pile on debt to fix the state's beleaguered health system and continue to pump money into education and transport infrastructure while it attempts to claw back a modest surplus in four years.
The COVID-19 pandemic has exposed the cracks in the state's health system, with GP shortages, ballooning surgery wait times and deadly ambulance delays exacerbated by coronavirus surges.
In a bid to cauterise the growing number of problems in the sector, the centrepiece of Treasurer Tim Pallas's eighth budget is a pandemic repair plan forecast to cost $12 billion over the next four years.
With triple-0 caught in a deadly crisis, the government has allocated $333 million to recruit 400 new staff for the Emergency Services Telecommunications Authority (ESTA), which has been under scrutiny after at least a dozen people died waiting for ambulances.
The budget also includes $4.2 billion for COVID-19 health support, including another $1.1 billion for rapid antigen tests, $698 million for healthcare in the home and $284 million for personal protective equipment.
Another $124 million is allocated for Ambulance Victoria to recruit 90 more paramedics.
A new 24/7 hospital will be built in politically sensitive Melton, in Melbourne's fast-growing outer west, which is expected to cost $900 million. There's also $500 million for an expansion of Geelong's women's and children's hospital.
A further $236 million will be spent on expanding emergency departments at Werribee Mercy Hospital in Melbourne's west and Casey Hospital in the east.
There is funding for up to 7,000 new healthcare workers for the new and existing facilities, including 5,000 more nurses.
The big health spend includes the $1.5 billion announced in April to reduce the growing elective surgery waitlist.
Another $1.3 billion will be spent to implement the recommendations of the state's mental health royal commission, a continuation of the centrepiece of last year's budget.
Opposition Leader Matthew Guy said rather than being a pandemic repair plan, it was "a PR repair plan for one Victorian: Daniel Andrews".
Education, transport and Commonwealth Games among budget winners
In total, the budget has allocated a total spend of $99 billion in the coming financial year.
Over the next four years, $2.2 billion is allocated for "funding not allocated to specific purposes" – which in an election year, means the state can expect more cash splashed before the November vote.
One of the election-year sweeteners was announced on Monday – a $250 rebate for energy bill payers if they use the state's electricity comparison website.
In a typical Labor budget, education is another big winner, with $1.8 billion allocated for building 13 new schools and upgrading 65 existing education settings.
To find more educators to work in those settings, $779 million is allocated to recruit 1,900 new teachers and $131 million is put aside for kindergarten services.
But the Australian Education Union said the government had "missed the mark" with TAFE funding — wanting more than the $83 million currently put aside to help the skills trainer move to a new funding model and help students find places.
And $3.5 billion in total will be spent on transport projects.
That includes $338 million for more train services, level crossing removals and Big Build initiatives, $993 million for road upgrades, and $250 million for 12 more V/Line trains on the Shepparton and Warrnambool lines.
But it has outlined a $5.8 billion blowout on the cost of the state capital works projects, which includes key transport infrastructure.
The Opposition Leader said if it was not for those blowouts, the state would have been able to fund important health investments without going deeper into debt.
"What that means is there are consequences for Victorians, a mountainous level of debt, with interest rates rising, is going to have a really challenging effect on our economy and our way of life," Mr Guy said.
The Commonwealth Games is another huge beneficiary, with $2.6 billion allocated between now and the games to develop infrastructure for the event.
As expected, the state's regional hubs will benefit from the Games spend, with new sporting and transport infrastructure to roll out as part of the event.
Victoria Police will get another $342 million for 502 new police officers and 50 public service officers. That's less than the 1,200 wanted by the union, but a significant boost to its ranks.
As announced in March, casual workers will be able to access sick pay under a two-year trial estimated to cost about $245 million over that trial period. There's nothing in the budget for what will happen once those two years are up.
Social and affordable housing is also getting some attention, with $1 billion being made available in low-interest loans to help community housing agencies build up to 6,000 more homes.
Net debt to be more than a quarter of state's economy by 2026
To pay for the spending, the state's net debt is projected to keep rising. It is expected to sit at $101.9 billion at the end of this financial year, which would account for 19.8 per cent of the state's entire economy.
It is an improvement on the $104.5 billion forecast in the budget update at the end of last year. But it is expected to keep growing across the forward estimates, growing to $118.5 billion next financial year and an eye-watering $167.5 billion in 2025-26 – 26.5 per cent of the state's economy.
In 2020, Mr Pallas unveiled a four-step fiscal strategy to recover from the effects of the pandemic: creating jobs, returning to an operating cash surplus, returning to operating surpluses then stabilising debt levels.
Mr Pallas was keen to highlight progress on the first three fronts in Tuesday's announcement.
The unemployment rate in the state is forecast to sit at a record-low 4 per cent in the next year, in line with the national average and making Victoria one of the best-performing states post-pandemic.
However, that rate is expected to rise slightly to 4.25 per cent the following year, rising to 4.75 per cent by 2025-26.
The budget projects the state will end this financial year in June with a jobs growth rate of 3 per cent, slowing to 1.75 per cent the following year and then picking up again to 1.25 per cent and 1.75 per cent the subsequent years.
The Treasurer's optimistic outlook on economic and jobs growth has the state forecast to be operating with a modest surplus in the 2025-26 financial year, a surprise after what was a grim outlook in last year's budget update.
Before the state gets there, an operating deficit of $17.6 billion is forecast for the upcoming financial year – $1.9 billion lower than forecast in the December budget update, but dramatically higher than the $11.6 billion projected in the budget last May, before rolling lockdowns and the deadly Omicron wave.
It means Victoria spent $17.6 billion more than it made in revenue in the last year, and is expected to keep spending more than it makes for at least four more years.
The deficit is projected to shrink to $7.9 billion in 2022-23, $3.3 billion then $1.1 billion before building to an operating surplus of $650 million by midway through 2026.
There is a similarly optimistic outlook for building to a cash surplus. The state is projected to end the current financial year with a $11.8 billion cash deficit, but the government is planning to build to a cash surplus of $1.3 billion the next financial year, rising to $5.5 billion in 2025-26.
The government is attributing that forecast rise to a projected government expenditure drop of 9.7 per cent in the upcoming year, largely due to ending pandemic support schemes.
There are no new taxes or significant cuts to public services as part of the forward plans, but tax revenue through mechanisms like stamp duty is expected to rise.
Budget underpinned by assumptions on 'intermittent' COVID outbreaks
To claw the state back from its debt and deficit, the budget relies on a number of key assumptions at a time it acknowledges is full of heightened economic risk.
It cites COVID-19, inflation and a backdrop of "elevated geopolitical volatility".
It projects the inflation rate will reach 3 per cent on average this financial year, before easing to 2.5 per cent on average in 2022-23.
That's well behind the real-world inflation rate of more than 5 per cent currently being experienced by Australians.
On the COVID front, the budget papers admit "future intermittent outbreaks are assumed to occur", but says the economy will be sheltered by high vaccination rates and "increased adaptation by consumers and businesses to outbreaks".
While the state's population has contracted, it is projected to pick up to 1.2 per cent by the middle of next year as net overseas and interstate migration recovers.
It says the gradual return of international students will pump money into services exports.
Consumer spending is also expected to keep rising in the forward estimates.
Mr Guy called some of the assumptions "pure fantasy".
Economist David Hayward said some of the assumptions were "a bit bold", including the projected inflation rate, which is already out of date.
He said the net debt was currently sustainable, as it was locked in at low interest rates and was being used to fund investments which would support the economy.
"For how long we can keep borrowing is another question," he cautioned.
Public sector wages – one of the government's biggest costs – are expected to account for $37.5 billion of expenditure in 2022-23. That price tag relies on the assumption the wages bill will rise by 2.2 per cent.
Public sector wages are currently capped at 1.5 per cent, well under the current inflation rate, and Mr Pallas indicated that may be up for review.
Crown Casino is one of the few clear losers in the papers, with an increase on taxes on poker machines forecast to bring in another $30 million in revenue from 2023 onwards.
On the other hand, the government will spend nearly $60 million to implement the recommendations from the royal commission into Crown's behaviour.
There is expected to be a revenue increase through stamp duty, which is projected to rise to $10.2 billion.
There is also a suggestion the state will gain back about $1.2 billion over three years from a settlement with the Cross Yarra Partnership Consortium, which is involved in the delayed and over-budget Metro Tunnel build. That is just a fraction of the total spending on the state's infrastructure projects.
The budget also contains an announcement of the new Victorian Future Fund, projected to be worth about $10 billion over the medium term and initially funded by the VicRoads Modernisation Joint Venture – a part-privatisation of the motor vehicle service announced last year.
Mr Pallas acknowledged he had been "particularly cryptic" in detail on the fund, because the state is currently involved in tender processes for initial contributions.
Today's announcements come amid a tightly-fought federal election campaign where cost of living has been front and centre.
Mr Pallas has not held back on criticism of the Commonwealth, in particular what he called "inadequate infrastructure funding" and GST revenue.
