Surging Victoria invests big time in transport and ending family violence

By Tom Burton

May 2, 2017

Surging population and employment growth in Victoria, underpins a $6.1 billion increase in new infrastructure spending, a huge $1.9 billion program to tackle family violence and a 25% cut in regional payroll tax, announced in the Victorian Budget today.

The Budget released by Victorian Treasurer, Tim Pallas, estimates government infrastructure investment will surge over the next fours years, averaging $9.6 billion a year, compared with an average of $5.6 billion a year over the decade to 2016-17.

These are mostly transport related initiatives to support Victoria’s rapid population growth, with the state experiencing the highest net interstate migration since 1961, reversing a half century loss of population to Queensland and Western Australia. On current ABS growth estimates Melbourne’s population is expected to exceed Sydney by 2036.

A major upscaling of family violence, policing and health programs will see a sharp 4.1% increase in public servant employee costs, estimated to grow public servant costs by $1 billion to $26.1 billion, in 2017-18.

Total government spending is expected to rise a healthy 3.2% on average over the next four years, rising to $67.4 billion in 2020-21. This spending is expected to be funded by an expected 3.7% growth in revenues over the next four years, generating an average operating surplus of $2.4 billion over the forward estimates.

The strong fiscal position is underpinned by a surging local economy that has seen Victoria emerge as the fastest growing state, with State economic output (GSP) expanding in real terms by 3.3% in 2015-16 , compared with a 2.7% national increase for the same period.

Both Victoria and NSW have been major beneficiaries of the low interest rate environment, fuelling record increases in property values and underpinning robust  household consumption, business investment, dwelling and public infrastructure investment.

Victorian Treasury predicts growth will taper slightly, but continue at a healthy 2.75% over the forward estimates. The surge in growth over 2015-16 was driven by a 11.1% increase in dwelling investment, the highest level since 2002.

Victorian employment increased by an average of 3% over the period, the strongest in Australia. Price and wage growth remained subdued, but are expected to rise as employment growth continues and excess capacity is reduced leading to an expected 0.5% increase in wages growth.

The main risks to the Budget and economic forecasts are higher than expected interest rates and an unexpected downturn in the housing market.

Global growth is described as lacklustre, with activity expected to pick up moderately. US trade policy uncertainty is signalled out, with an increase in global tariffs predicted to reduce the competiveness of Victoria’s exports.

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