The new Victorian government has followed the tradition of very responsible Victorian budgets. As is the norm, the budget expects to run surpluses across the forecasts and use those surpluses to reduce the State’s net liabilities.
As a Labor government, its policy priorities are reflected in two main ways. First, expenditure will grow faster than was planned under the previous conservative governments. And second, expenditure will be focused on traditional Labor areas such as health and education. The clear policy choice is to spend more rather than reduce taxes. There are no substantial revenue initiatives with no significant tax changes.
At the macro level, there is scope for the budget to turn out better than anticipated. As the Australian economy recovers and growth rotates away from the resource-exporting states, Victoria’s revenue estimates may turn out to be conservative. Most of the state’s revenue comes from taxation (34%) and from grants (46%). Oddly the taxation revenue is expected to grow more slowly than the economy.
Part of this is because the government is forecasting a much slower growth in property taxes and in fact that all tax revenues except payroll tax will grow more slowly than the economy.
This is despite the fact that it asserts that the rebalancing of the Australian economy will help Victoria’s diversified economy. In effect, the revenue forecast is conservative. Interestingly revenue from fees and fines is actually predicted to fall. While Victoria’s GST payments are up, grants from the Commonwealth will fall. Specific purpose grants from the Commonwealth are basically flat, so falling in real terms.
Public service wages are the fastest growing element of expenses, with a rise of 7.1% compared to overall expense growth of 3.1%. The budget suggests it will be able to prevent this big wage adjustment from flowing through to other years since the following year wage growth is expected to slow sharply to 3.3%.
This is clearly a very big risk to the Andrews government – will it be able to control wage costs?
Strategically Victoria is clear that its advantage in the Australian economy lies in its people. The budget is positioned as being “for families”, a theme which allows it to bundle together its main policy themes of education, health, transport, and safety.
The big spending moves are in public service wages, education and health. Many of the health and educational changes would have taken place anyway; some - such as the commitment to boost TAFEs - honour electoral commitments. There are also a swag of promises on transport and infrastructure, with the level crossing removal project off quickly and the metro rail process to move through the planning phase over the next few years.
There will be more trains, more trams and a range of road upgrades. The Gonski education reforms are fully funded for 2015 and 2017. Overall the impression is that there will be a wide range of small projects, and lots of policy announcements, but few bold commitments.
Aside from these signature moves, the budget canvasses all the wide range of issues state governments have to consider. There are boosts to police, ambulance and firefighters; there are whole host of specific announcements for the regions, and there is a jobs plan.
None is huge in terms of the broad budget, but each ticks a political box.