The Andrews government is betting on surging post-lockdown economic growth to rebuild Victoria’s battered finances as it prepares to amass a war chest to fight the November 2022 state election.
State Treasury’s mid-financial year budget update, to be released on Friday, ramps up predictions for economic growth for the 2022-23 financial year.
Treasurer Tim Pallas said the government was not going to balance the books through austerity.Credit:Justin McManus
The government now believes the economy will bounce back by 4.5 per cent, compared with a prediction of 3.25 per cent made in the May budget seven months ago.
Booming house prices are continuing to fill the government’s coffers with stamp duty revenue. Victoria already has one of the highest tax hauls as a proportion of the economy in the nation, but the government isn’t ruling out imposing new taxes.
Treasurer Tim Pallas has hit back at critics of government spending, saying he is not attempting to balance the books through austerity.
In an interview with The Age, Mr Pallas said he had “a fair degree of confidence that the economy is in the process of a stellar bounceback”.
That expected bounceback partly reflects a return to normality after the dramatic economic hit triggered by the pandemic.
Victoria, one of the most locked-down jurisdictions in the world, was the only state to record a drop in economic growth last financial year, when the economy shrank by 0.4 per cent.
That compared with growth of 1.4 per cent in NSW, 2 per cent in Queensland, 3.9 per cent in South Australia and 2.6 per cent in Western Australia.
The government’s May budget forecasts for the current financial year were derailed by the Delta wave of COVID-19, which intensified from the middle of the year, causing a massive economic contraction. But Mr Pallas said the pandemic would be unlikely to hit the economy hard for a third year.
Melbourne’s CBD was almost deserted during this year’s lockdowns.Credit:Paul Jeffers
He said his expectation was that the budget would in cash terms return to balance in the not-too-distant future, “well and truly within the forward estimates”.
“The economy is in an extremely strong position to recover, and as the economy recovers so does our balance sheet,” he said. “We’ve got very strong economic foundations.”
State unemployment is now expected to average 4.5 per cent in 2021-22, lower than the forecast of 5.75 per cent in the budget. Regional unemployment is expected to fall to 3.3 per cent.
The government’s political strategy for the 2022 election is strongly predicated on the predictions being achieved.
Lines outside Centrelink as the pandemic struck last year.Credit:Jason South
The budget update will predict net debt of about $142 billion by June 2024. That represents a slight increase compared with this year’s budget, although it is still about $11 billion better than the $155 billion expected a year before that, before the Delta wave derailed Victoria’s recovery.
Mr Pallas also hit back at critics calling on the government to scale back spending.
“We are not into trying to balance budgets through austerity,” he said. “In many cases they simply constrain your economic opportunities, and it [would] be felt quite profoundly in communities that have done it tough already.”
The bottom line has also been buoyed on the revenue side, with booming house prices continuing to fill the government’s coffers with stamp duty revenue. Expectations for payroll taxes are also being raised, with the jobless rate expected to continue to fall.
“Property markets are restoring and growing very solidly at the moment. As business employee payroll receipts start to improve and the government moves out of the business of providing support to businesses or community groups they naturally improve,” Mr Pallas said.
But having already imposed a range of new taxes over the past seven years, the government isn’t ruling out imposing new ones to balance the books.
“We are not a government who see we should be raising taxes simply for the gratuity of it,” Mr Pallas said. “And I think our record is pretty clear; we have reduced as many taxes as we have increased.”
But he said the government’s approach was about “recognising where taxation can best be borne”.
“We are very [much] of the view that we need to recognise from a government perspective, don’t cut off your options, but be prepared to use your balance sheet to support households and business.”
Victoria already has one of the highest tax hauls as a proportion of the economy in the nation. Last financial year it raked in about $23.6 billion worth of taxes levied on property, payrolls, land, gambling and a raft of other activities and transactions.
Analysis by The Age found that was equivalent to about 5 per cent of the state economy. That was second to NSW, which levied about $34.0 billion worth of taxes, equivalent to about 5.4 per cent of the state economy.
In other states, tax levels are far lower. In Western Australia, for example, which benefits from billions of dollars worth of mining royalties, state taxes are equivalent to just 3.1 per cent of the economy.
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