Victorian budget: surprisingly few nasties in a bad year

By David Donaldson

Wednesday May 29, 2019

Victorian state budget breakfast. Source: IPAA Victoria

A “conservative” approach to booking volatile stamp duty revenue during the property boom has helped Victoria avoid big tax hikes this year, says Grattan Institute CEO John Daley.

More than $1 billion in stamp duty has vanished from the coming year’s budget thanks to the recent housing downturn, as both house prices and sales volumes have slumped.

“The circumstances aren’t great,” Daley told the IPAA Victoria budget breakfast on Tuesday morning.

“You had about as bad a fall in the property market as you could expect, you had an election year, which always means there’s a whole bunch of promises you have to find space for, you have a slowdown in the national economy, and you have a Commonwealth government that is not being particularly helpful to Victoria.

“And yet, given all of that, it’s a budget that still manages to deliver a surplus, and delivers it without what one might describe as horror tax increases. … Also when you look at the spending cuts side, again, not that much.”

There were a few tax increases — on luxury cars, foreign property owners and gold — but they will leave most Victorians untouched.

A “shakedown” of public corporations helped boost the $1 billion budget surplus, Daley said. In the budget papers, “the dividends from public corporations suddenly go up by $250 million a year, and then they suddenly go back down again”, he noted.

Notwithstanding the new efficiency dividend, it could all have been much worse.

“So that was a surprise to me, in a sense given how difficult this budget situation is, there is surprisingly little in the way of nasties.”

Former secretary Fran Thorn said there were a few areas the budget had overlooked.

New funding for mental health is “pretty small”, she argued.

“That’s a placeholder for whatever comes out of the mental health royal commission, which will mean we need to spend more money on mental health. It’s hard to imagine it saying much else. It’ll say a lot of other things, like we could be much better in how we do it.”

Another area is child protection, which does not receive ongoing ‘demand’ funding. “They have to argue year on year on year for more money.”

“Other areas that I would have loved to have seen more investment in, and it would have required a big deep breath and a lot of bravery, is in ICT, particularly in areas like health,” said Thorn.

“The amount of funding in the budget, I just wanted to cry when I saw it — something like $16 million.

“… It’s like really guys, if you want to get productivity in health, start doing some serious investment there. But people are terrified of ICT investments.”

Spending some decent money on ICT could bring significant returns, she thinks.

“I think ICT is a seriously under-invested in space, and not just in health.”

Treasury Secretary David Martine also revealed his department had been thinking about things like the New Zealand wellbeing budget approach, which has grown out of work emphasising the potential long-term savings of early investment in disadvantaged communities, but argued there were challenges to making it work.

“We have been giving a bit of thought to how better to measure the impacts of government spending, and also to take into account longer term benefits,” Martine said.

“One of the difficulties all jurisdictions face in budgets, particularly in the area of social services, is the benefit from the investment is hard to measure, and it comes perhaps a decade later.

“So while you may in an infrastructure project be able to calculate a BCR [benefit-cost ratio], and if it’s above one it’s a great project, and if it’s below it’s not, in the social services area it’s very difficult. So we have in the department been giving it a bit of thought, it’s certainly a very important question.”

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