Victoria’s economic outlook is once again positive – the state currently boasts the fastest growing economy in Australia, a fact Treasurer Tim Pallas jumped on when he said the government was “getting it done”, in his budget speech on 27 April 2016.

Mr Pallas accused the Turnbull government of being indecisive around state infrastructure projects, saying that Victoria’s small allocation of the federal infrastructure budget made him question if “…the federal government knows where Victoria is, certainly their allocations don't seem to give much confidence that they do". As a result of being unable to secure any substantial federal funding for the Melbourne Metro rail project (which was announced in last year’s State budget), the Victorian government will now fully fund the $10.9 billion required for this project.

The Budget is likely to be well received by business, given the government's increased infrastructure spending and a continuing commitment averaging $7.4 billion a year over the next four years for key transport, health and education projects. The economic activity generated by this unprecedented government spend should have a positive impact on mid-size business. However, foreign investment in Victoria is likely to be hit by the increase in the duty surcharge payable by foreign investors and the land tax surcharge levied on absentee owners.

Headline items from the Budget are:

  • an operating surplus of $2.9 billion in 2016-17 and surpluses averaging $2.1 billion a year over the forward estimates to 2019-20
  • expected economic growth of 3 per cent for 2016-17
  • a reduction in net debt from 5.9 per cent of gross state product this year to 4.8 per cent by 2019-20
  • total revenue growth to average 3.4 per cent per year over the forward estimates to 2019-20, including state taxation revenue growth of an average of 3.9 per cent over the same period
  • a slight reduction in unemployment from the current 5.7 per cent to 5.5 per cent by 2018-19.

Major announcements

Investment of over $10.4 billion in public transport and road projects to transform the public transport system and reduce road congestion, including:

  • $1.9 billion to expand and upgrade the metropolitan rail network
  • $1.46 billion over four years for the Western Distributor project, including the Monash freeway upgrade and Webb Dock Access improvement works
  • $875 million for 28 high-capacity trains for the metropolitan network
  • $588 for the Mernda rail extension project
  • $518 million for upgrades to the Ballarat train line
  • $280 million for 27 new VLocity carriages to boost the regional network
  • $198 million for improving V/Line service standards
  • $141 million for regional rail maintenance
  • $140 million to upgrade the Hurstbridge train line
  • $134 million for fire safety and intruder detection upgrades to the City Loop
  • $105 million for five X’Trapolis trains

Investment of $2.9 billion in health infrastructure, including hospital facilities and services, elective surgery, ambulances and mental health including:

  • $346 million for mental health facilities and programs
  • $335 million for additional elective surgery
  • $200 million for the regional health infrastructure fund
  • $169 million to redevelop the Goulburn Valley Health Shepparton campus
  • $143 million to improve ambulance services
  • $135 million for the Victorian Heart Hospital at Monash University in Clayton

Other announcements including:

  • Investment of $924 million for new and upgraded schools
  • $468 million to protect Victoria’s water supply and support a healthy environment
  • $325 million to create jobs in regional Victoria
  • $237 million to attract investment, the best global talent and the biggest international companies to Victoria
  • $111 million in additional funding for the Future Industries Fund to assist medical technology and pharmaceuticals, international education, professional services, new energy technologies, food and fibre, as well as technology innovation in construction, transport and defence industries.

Social responsibility

  • $572 million over three years to overhaul the family violence system in line with the most urgent recommendations made by the Royal Commission into Family Violence, focusing on housing and crisis refuges, as well as additional counsellors, prevention programs and support for children who are victims of family violence
  • $540 million to increase public safety and police response times, including 406 additional sworn police officers, 52 additional specialist staff, technology upgrades and additional forensic capability
  • $414 million to strengthen the management of dangerous criminals and for measures to get less serious and younger offenders ‘back on track’
  • $228 million to support emergency services
  • $132 million for disability-related initiatives to prepare Victoria for the National Disability Insurance Scheme.

State taxes

  • A gradual increase of the payroll tax-free threshold from $550,000 to $650,000 by 2019-20.
  • Exempting the wages of a displaced apprentice or trainee from payroll tax with effect from 1 July 2016.
  • The extension of the exemption from land tax for primary production land in urban zones to land owned by certain family superannuation trusts with effect from 1 July 2016.
  • An increase in the surcharge payable by foreign buyers of residential property from 3 per cent to 7 per cent (applicable to contracts entered into on or after 1 July 2016), in addition to stamp duty.
  • An increase in the absentee landowner surcharge payable by landowners who do not ordinarily reside in Australia (in addition to any other land tax payable) from 0.5 per cent to 1.5 per cent of the unimproved value of the land (applicable from the 2017 land tax year).

For more information please contact your usual Grant Thornton advisor, or:

Tony Windle
National Leader of Indirect Tax
T +61 403 599 113