03.06.2021Big Spending in the 2021/2022 Victorian Government Budget

Surprise new taxes on business form part of the big spending Victorian Government Budget 2021/2022

In its pre-budget submission Committee for Melbourne called for an ambitious and visionary 2021/2022 Victorian budget that would lay the foundations for a prosperous future for Victoria.

The Victorian budget has much to like in it, including expenditure on infrastructure such as hospitals and schools, skills, mental health and education, and support for the visitor economy, CBD revitalisation and an initial investment in Fisherman’s Bend. These investments support near term jobs and economic activity.

We are less sure that the budget sets a convincing vision for an economy of the future in a competitive environment where Victoria’s harshest COVID-19 lockdown experience in the nation has had a big impact on significant sectors of the economy, with brand and reputational issues for our city. At this critical time a budget should create confidence and stability. The surprise new taxes on business and jobs risk undermining the policy certainty we need for recovery.

The Committee was surprised at the extent of the new taxes on business and jobs announced without prior consultation. The economic and social impacts of COVID-19 mean that capital and people are even more mobile, with more choice about where to live, work, play and invest. The sovereign risk of these surprise new taxation announcements could be considerable and send a signal of ongoing policy uncertainty.

Victoria needs to hang on to its talented workforce and build on it by becoming an investment destination of choice. Comparisons will be made with other states and these new taxation measures may see Victoria judged harshly. Increases to land tax, stamp duty and the introduction of a new ‘windfall gains tax’ and the Mental Health and Wellbeing Levy on businesses that pay more than $10 million in wages nationally from 1 January 2022 – will cost businesses and ordinary Victorians. Businesses hit hardest by the pandemic, such as universities, hotels and restaurants have proportionately high wage costs, and will be challenged further by the new levy on jobs.

Big spending should be underpinned by a visionary plan for a productive, sustainable economy. How productive will the huge ‘hard’ infrastructure commitments around $22 billion per annum between 2021/2022 to 2024/2025 be, and do we even have the resources and skills needed to supply them? How can the state ramp up to these projects in an overheated market where government will be challenged to access the right skills to execute, without major cost overruns we have already witnessed? If this cannot be achieved, capital should be re-directed to other more productive projects.

Will the impressive $383.8 million investment in skills, training and higher education, including $86 million to set up the Victorian Skills Authority develop the skills pipeline we need to supply the skills of the future for an innovative, creative and digitally savvy workforce? The forecast growth in the public sector workforce will also increase costs and create an environment of higher taxes and further government debt to pay for this expenditure, much of which is administrative, not productive.

The Committee looks forward to continued dialogue with the Victorian Government on the budget initiatives and measures to secure the policy settings for ensuring Melbourne is a destination of choice for people and businesses into the future.


Read more about the 2021/2022 Victorian Budget

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