Victorian budget: the big spend and the efficiency dividend

By David Donaldson

Monday May 27, 2019

Victoria’s big infrastructure spend is ramping up, with this year’s state budget showing a doubling of debt to fund election promises on major transport projects and schools.

The North East Link freeway, suburban road upgrades, airport rail, train line upgrades, new trains and trams, level crossing removals, a new hospital and brand new schools are among the projects contributing to a big increase in spending in the 2019-20 Victorian budget released on Monday.

All this spending will see debt as a proportion of the state’s economy rise from last year’s figure of 4.6% to 10% in 2023. It will top out at 12% in the “medium term”, says the government — still well below the Commonwealth’s figure of around 40%. This increase will occur despite the $1 billion operating surplus in this year’s budget.

The Andrews government’s spending has already led to public expenditure increasing as a proportion of the economy, with public consumption having increased by 21% since 2013-14.

Victoria’s economy is doing well, however, with unemployment now at its lowest since 2011. The state’s economy grew by 3.5% last year — more than any other state and well above the national rate of 2.8%.

Many see the big spend as vital to catch up with the state’s population growth, which is the highest in the country.

But the increase in expenditure is occurring as the tax take has suffered a big hit from the property downturn, with stamp duty down more than $1 billion on previous years.

Public servants will have to help plug the shortfall with just under $2 billion in cuts over four years. While the overall public sector staff bill is projected to continue increasing by around $200 million a year, public servants will be subject to a bigger efficiency dividend and a reduction in the indexation of expenditure growth as output funding is brought into line with lower than expected inflation. The budget shows $250 million in savings in the coming financial year, jumping to $513 million the year after, and $635 million in 2022-23.

All up, the indexation change will save $200 million over four years, while the efficiency dividend will take out $1.77 billion.

To support these efficiencies, a comprehensive program of expenditure base reviews will be undertaken across all portfolios.

The creation of a priority precincts portfolio in the Department of Jobs, Precincts and Regions at a cost of $6.3 million a year will help guide the design and delivery of some of the state’s major planning and infrastructure investments, including Fishermans Bend, Arden, the Parkville biomedical precinct, Sunshine and the Richmond to Docklands corridor.

The government has pencilled in $880 million to begin the rollout of universal three-year-old kindergarten, starting in regional areas first. This will see every three year old have access to at least five hours per week of kinder, increasing to 15 hours over the next decade. This will nearly double the size of the kinder sector, so early childhood education courses will be added to the free TAFE list, and $300 million will be spent on new facilities.

The next phase of school building will cost $1.8 billion over the forward estimates, with 13 new schools to open by 2021. A further 109 schools will receive major upgrades.

The budget also includes $3.8 billion for hospital construction, including the new Footscray Hospital.

To fund the construction and expansion of prisons, the government will spend $1.8 billion over the next few years. Public housing gets $209 million, which will pay for 1000 new homes over the next three years across Melbourne, Geelong and Ballarat.

There’s $150 million to create the Victorian Jobs and Investment Fund, which aims to attract investment, create jobs and foster business growth, and $8.8 million to build on the Jobs Victoria employment scheme.

The government is also spending on green spaces, with $154 million for build 6500 hectares of suburban parks — the equivalent of more than 170 Royal Botanic Gardens.

And if you’re a fan of Bollywood, you’re in luck, as the government will spend $3 million over the next three years to establish a new Indian Cinema and Bollywood Attraction Fund, to be administered by DJPR.

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