Highlights of the Victorian State Budget 2024-25

The Victorian Government faces mounting debt levels amidst cost-of-living pressures and a need to reduce spending to rein in debt and finely balance economic growth without any added inflationary consequences.

Key budget measures announced

The economic environment

Economic growth in Victoria is forecast to increase to 2.5% which is expected to return Victoria to a position of growing slightly faster than the national average, whilst unemployment is predicted to increase from 4% to 4.5% over the next two years as the impact of higher interest rates and inflation impact on overall economic growth.

Despite steady growth and slightly lower than expected unemployment, there are a dwindling number of levers left to pull to appease all sides. The Reserve Bank of Australia, along with many prominent economists, have added pressure to the State Government to curb spending, and in particular, the broad application of stimulus to ease cost of living pressures for individual Victorians. The concern is that additional support to Victorian households will increase discretionary spending, adding to inflationary pressures that are, for the moment, beginning to slow.

Added to this is the battle for bringing this debt down over time, which currently stands at $136 billion, and which is projected to grow to $188 billion by 2028, Victoria has a far more significant share of debt than any of its rival states, but without the same opportunities to reduce that debt through resources royalties that its counterparts in Queensland and Western Australia have. Victoria must rely on reduced spending or increased taxes to begin recouping the growing balance of debt, estimated to be accruing as much as $25 million in interest each day by the time that debt maxes out in 2028, nearly double its nearest neighbour NSW in terms of debt.

After the hit that individuals and businesses took in last year’s budget, by way of increases to land taxes, the COVID Debt Levy added to payroll tax costs, and increased Workcover premiums to fund the mental health injury compensation scheme, there is a view that taxes have already peaked in terms of what will continue to make Victoria an attractive state for doing business or investing.

Parliamentary Budget Office data indicates that the temporary levies will cost businesses $3.9 billion over the next four years, with an additional $4.7 billion hitting the property investor market for the same period. Some argue that the contraction of investment in Victoria is already manifesting by way of exiting real estate investors as a result of the ever-increasing land tax bills and the inability to raise rents sufficient to cover the increases. Last quarter, Melbourne was the only capital city to record zero growth in home values, and went backwards in April 2024 by 0.1% – the only state to show negative growth. For a state that relies on stamp duty and land taxes as its main sources of revenue (approximately 45% of total state revenues) the only way to reduce debt without increasing taxes is a cessation of big project spending.

Difficulties facing the government have been the finalisation of major projects already underway – including the Metro Tunnel and West Gate Tunnel – with costs blowing out by over twenty percent due to rising costs of labour and supplies. The question facing the Government now will be how much of the $80 billion major project pipeline do they put on hold until the debt issue can be brought under control.

For the second budget running, no further progress is proposed to be made on the $10 billion previously allocated for the Airport Rail Link project, now deferred for at least a further four years. Other major infrastructure spending for the North East Link (already $20 billion over budget) and the $125 billion Suburban Rail Loop will proceed, however these projects are expected to cast a long shadow over budgets to come, though for now the State Government appears committed to these projects, whilst cutting or delaying others.

Key Budget areas announced

School Saving Bonus

A new School Saving Bonus to deliver $287 million for 700,000 students to help with school uniforms, camps, sports and other school costs.

It is a one-off, $400 payment. The bonus will be applied for each child but can be spent per family – so a family with three schoolchildren will receive $1,200 to spend on school costs, either as a credit towards the cost of participating in activities in school and vouchers for families to use to purchase school uniforms.

Every child at a Victorian public school and eligible concession cardholders at non-government schools will get the payments, however the payment will not apply to other students at Catholic and independent schools. The bonus is proposed to be introduced in Term 1 of the 2025 school calendar.

Free kinder rollout continued

An additional $129 million is budgeted to continue delivering Free Kinder and the statewide rollout of Three-Year-Old Kinder, which was announced in last year’s budget.

Scrapping of the First Homeowner Grant

The First Homeowners Grant offers $10,000 to first home buyers of newly built homes that are worth up to $750,000. The grant will be extended for one final year at a cost of $700 million before the Victorian Homebuyer Fund is discontinued.

There is an expectation that this will be replaced by the Federal Government’s proposed Help to Buy Scheme, noting that this was introduced to parliament last year but has not progressed beyond a public consultation by the Department of Treasury, which will remain open until late May 2024.

Energy efficiency initiatives

  • $38 million to help Victorians install and switch to electric heat pumps and solar hot water systems.
  • Extension of the interest-free loan program to install solar battery storage systems in homes.
  • $3.4 million to continue the Energy Assistance Program to help vulnerable customers navigate the retail energy market.

Conclusion of Sick Pay Guarantee Pilot

Created during the pandemic to protect Victorians and give casual and contract workers sick pay, the Sick Pay Guarantee will conclude on 30 June 2024.

2023-24 Budget Measures commencing 1 July 2024

Insurance duty phasing out

The rate of insurance duty on fire and industrial special risks, public and product liability, professional indemnity, employers’ liability, and marine and aviation insurance will be reduced by 1 percentage point each year from 1 July 2024. These reforms are proposed to save, on average, $3,200 on professional indemnity insurance and $2,400 on fire and other special risk insurance cumulatively over 10 years.

Payroll tax reductions for smaller businesses

Uplift in the payroll tax threshold from $700,000 to $900,000 from 1 July 2024, with a further increase to $1 million from 1 July 2025. This is estimated to remove the burden of payroll tax for 4,200 businesses and reduce the amount of payroll tax payable for a further 22,000 business as a result of the uplift for the first change to thresholds, and a further 1,500 businesses that will become exempt once the threshold increases to $1 million.

It is also proposed that the payroll tax-free threshold will be phased out for larger businesses over time.

Stamp duty reform

Properties that are sold from 1 July 2024 will pay stamp duty one last time. After that, stamp duty on the property will be replaced with a more efficient ‘commercial and industrial property tax’ based on unimproved land value, payable annually from 10 years after the property was transacted.

If the same property is sold a second or subsequent time, stamp duty will not apply as long as the property continues to be used for a commercial or industrial purpose. The commercial and industrial property tax will be set at a flat 1% of the property’s unimproved land value per annum.

To support the transition, eligible first purchasers of a commercial or industrial property entering the reform will also have the option of accessing a government transition loan to finance the upfront stamp duty liability.

New business and workforce measures announced

  • $40 million for LaunchVic to continue fostering the capabilities and confidence of future innovators, creators and entrepreneurs – with Victoria home to more than 3 400 startups.
  • $9.4 million for the Business Events Fund to attract more high-profile international business events to Victoria and for implementation and enforcement of the Major Events Act 2009.
  • $2.3 million to keep backing small businesses with the advice and support they need to grow.
  • $425.9 million for access to vocational training and Free TAFE, offering more than 80 courses and to retrain workers for industries and sectors in need, such as disability support.
  • $117.3 million to continue supporting the TAFE Network, as Victoria’s trusted public provider of choice, to meet Victoria’s current and future skills requirements and economic growth.
  • $15.8 million to support mental health graduate placements. This builds a pipeline of trained professionals in various mental care services, helping Victorians to access mental healthcare.
  • $11.4 million to continue supports for apprentices, trainees and their employers to meet Victoria’s workforce priorities, including through Apprenticeships Victoria and the Apprenticeship Support Officer program.

Regional and rural Victoria

Regional Victorians will benefit from an investment of $186 million for rural and regional healthcare, including funding for Ballarat Base Hospital and the expanded Latrobe Regional Hospital.

The budget funds $133 million to support regional rail network operations including operating newly delivered train stabling yards, stations and VLocity trains and remediation works on the Geelong Tunnel, and $41 million provided to continue train timetable services, including running additional weekday return services for the Warrnambool and Echuca lines.

$105 million towards road maintenance, to undertake road pavement rehabilitation works across the state and especially in regional Victoria. This is in addition to the $2.8 billion road maintenance and flood recovery investment announced last budget, as well as the further $100 million investment in this budget towards road network recovery work for pavements, infrastructure and landslips.

Other regional spending announced:

  • $5.7 million to support parents in rural and regional areas, ensuring they have the care they need during pregnancy.
  • $28 million to deliver high-quality care in regional public sector residential aged care facilities.
  • $11 million for Priority Primary Care Centres in regional areas.
  • $10 million to provide additional mental health care to regional communities through support in Youth Prevention and Recovery Care (YPARC) beds, Mental Health and Wellbeing Hubs, and suicide prevention services.
  • $6.9 million to deliver new early intervention for Victorians with an eating disorder, including an Eating Disorders Day Program in regional Victoria.
  • $1.6 million to increase the number of people with cancer receiving early palliative care in our regional communities.
  • $4.1 million will go to the Rural Financial Counselling Service, so Victorian farmers, fishers, foresters and related small business owners experiencing financial hardship can continue to access free financial counselling.
  • $33 million to continue marketing Victoria as a leading tourism and events destination.
  • $3.3 million to support Victoria’s regional tourism boards and visitor economy partnerships, backing their work to grow local tourism and local jobs.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

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