VIC State Budget 2016-17 | Growing Victoria

By Craig Whatman - April 27, 2016

Victorian Treasurer Tim Pallas handed down the Andrews Government’s second Budget this afternoon.

It commits the government to significant spending in the areas of health, education and transport infrastructure projects. The spending promises are supported by a strong surplus position, which is underpinned by continued growth in state tax revenue.

The Victorian economy has performed well over the past 12 months, as evidenced by the government’s projected operating surplus of $2.9bn for 2016-17, with projected total surpluses of $9.2bn over the forward estimates period. 

This represents a noticeable increase from the surpluses forecast in last year’s Budget. Victoria’s growing surplus has been achieved through a significant uplift in projected taxation revenue – in particular revenue from property taxes.

Economic growth is projected to be 3% over the next 12 months, which is up from 2.5%. The unemployment rate will continue its downhill run from 6.5% in 2015 to a projected 5.7% in 2017.

The Andrews Government has committed to ongoing investment in infrastructure projects, which will create more procurement opportunities for our clients as well as helping them to move people and goods more easily around the state.

Infrastructure investment will average $7.4bn a year over the next four years, with funding for key projects in urban and regional transport, health and education.

We are pleased to see that for the first time since 2002, the government has decided to increase the payroll tax threshold by $100,000 over the next four years, to $650,000. 

Pitcher Partners has for many years advocated for payroll tax relief for the middle market. A $25,000 increase in the threshold each year for the next four years is a good start, but we believe that further payroll tax reform is needed to reduce employment costs incurred by business.  

The proposed increase in the threshold will translate into a modest saving of $1,200 per annum for those businesses still above the threshold. And Victoria’s increased threshold still looks low when compared to NSW at $750,000 and the national average of $1,050,000.  

Despite the threshold increase, the Government is still projecting a 5.4% increase in payroll tax revenue to $5.7bn in 2016-17. In this context we will continue to advocate for a more substantial increase in the payroll tax threshold on behalf of our clients.

Property taxes continue to prop up the government’s revenue position and remain a significant cost for many of our clients. Stamp duty on land transfers grew by 23% in 2015-16 to $6.064bn due to the booming property market, and is projected to increase by a further 16% over the next four years.  

Land tax revenue is projected to increase by a staggering 28% in 2016-17 as it will be a revaluation year and there has been strong growth in the property market since the last revaluations were performed.

In the context of the existing strength in property tax collections, it is disappointing that the government has decided to increase the stamp duty surcharge payable by foreign purchasers of residential property in Victoria from 3% to 7% and the land tax surcharge payable by absentee owners of Victorian land from 0.5% to 1.5%.  

We believe these increases will have a detrimental impact on the appetite of foreign developers and investors to continue investing into Victoria’s property market. 

Although the government has said that no Victorians will pay the surcharges, we are already seeing the flow-through impact of the land tax surcharge in terms of increased rents payable by Victorian businesses. And the stamp duty surcharge is leading to higher development costs for local developers who have partnered with offshore investors on Victorian property development projects.

Victoria’s population is predicted to steadily increase over the forward estimates period and the government’s own figures have our population overtaking Sydney’s by 2030. With this in mind, we are concerned that a reduction in offshore investment due to the surcharges could have an adverse impact on the level of supply of housing stock over the medium turn, which could in turn translate into higher prices for Victorian home buyers. 

On the one hand the government has announced in the Budget that it will commit $237m to attract investment to Victoria and that it wants “to bring the biggest international companies to our soil”.  

But on the other hand it is targeting some of the biggest international property companies through increased stamp duty and land tax surcharges, which seems to fly in the face of a commitment to attract offshore investment into Victoria.

We congratulate the government for the sound economic platform achieved in this year’s Budget, and encourage it to continue investing in infrastructure projects that will create more jobs for Victorian businesses and their staff.  

We believe that Victoria’s strong financial position over the next four years should be seen as an opportunity for the Andrews Government to review its state taxes policy and provide further targeted tax relief for the middle market businesses that are the backbone of Victoria’s economy.

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