Victorian Budget 2024/25 briefing note

This year’s Victorian Budget theme was “Helping families”, and had been set up as a tough budget designed to curb spending while helping with the cost of living.
This was the tenth handed down by Treasurer Tim Pallas and the first for Jacinta Allan as Premier, writes McKell Institute Victoria Executive Director Rebecca Thistleton.

 

From the stakeholder lock-up

Mood setting ahead of budget day started months ago. Worldwide economic headwinds, inflation and workforce pressures featured heavily in Tim Pallas’s public statements this year, managing expectations in the lead-up to May 7: Budget Day.

And, now that we’ve been let out of the lockup, I think it worked. In today’s stakeholder lock-up, where we hand in our phones to avoid news leaks, the collective chatter was that everyone was bracing for austerity and cuts.

Deputy Premier and Minister for Education Ben Carroll was event emcee, talking up the centrepiece of this year’s budget- a $400 saving bonus for each Victorian child at a government school.

Carroll told the audience that both his and the Premier’s fathers lost their jobs when Victoria’s State Electricity Commission was shut down in the 1990s, when unemployment spiked. This point was picked up by Premier Jacinta Allan, saying she will always welcome low unemployment (the state’s 4% rate is a 50-year record low) but noted this was driving up costs.

Those workforce pressures and inflation were the consistent thread running through the Deputy Premier, Premier and Assistant Treasurer Danny Pearson’s speeches.

We heard the same from Treasurer Tim Pallas in his speech to the Parliament.


The state’s bottom line

Victoria’s debt is set to reach $187.8 billion in 2028, with the next election to be held in November 2026. Major projects have been delayed and programs cut to deliver the government’s promised surplus, expected to be $1.5 billion in 2025-26 and $1.6 billion in 2026-27.

This budget is arguably the toughest Pallas has handed down, without the pre-budget announcements we’ve seen in the previous nine years.

Despite work to rein in spending, overall government spending is expected to increase by an average 2.2 per cent – higher than the 1.9 per cent flagged over the forward estimates in 2023/24.

Photo: Victorian Treasurer Tim Pallas making his 2023 McKell Institute Budget Address

Notable spending

While the full list of spending announcements is available in media releases and budget papers, here are a few highlights:

$550m for skills and TAFE to train more workers.

$996m to “switch on” Big Build projects
This is not new money, but the change in language to “switching on” is part of the government’s mission to remind us that work continues on the Westgate Tunnel and Metro Rail as they near completion.

Another 16 schools funded to bring the total number of new schools built by the Andrews and Allan governments to 100 by 2026.

$211 million for family violence prevention and help and $39 million to continue the state’s “Respectful Relationships” program.

And, as noted by Josh Gordon in The Age: “Another $500 million has been squirrelled away in the hollow log known as the contingency reserve, for future as-yet-unknown spending announcements.”

 

Notable savings and cuts

Now to the less obvious parts of the budget papers.

Infrastructure spending will be reduced from a $24 billion peak to $15.6 billion by 2027-28. The Premier noted in her speech that this will also take some of the heat out of rising construction costs.

There was no new money for the Airport Rail line. The stalemate between the Melbourne Airport, who wants the station underground, and the government, which refuses to build it underground, has given cover to the funding delay. The Premier said the project has been delayed at least four years.

Last year’s budget showed 3000 jobs would be cut from the public service. While 1400 roles have gone, and more to go, public sector wages have increased from $38 billion to $42 billion. The reduced public service headcount means the government will be reducing how much office space it uses. Government advertising will also be reduced.

Spending for programs introduced as part of the COVID pandemic response have been wound up. This includes providing free rapid antigen tests and tourism projects. The sick pay leave pilot program, which had been extended to 2025, will also be wound up. While this has been described as a “pilot”, another 400 jobs were added to the list of eligible professions in August last year.

New mental health and wellbeing hubs, announced before the 2022 election, will be delayed, as will the free kinder expansion. This is due to the shortage of early childhood educators and healthcare professionals.

Healthcare infrastructure funding has also been given a haircut. New major hospitals announced for the Arden precinct will need to be redesigned because of interference from the nearby Metro Rail Tunnel. Upgrades to the Northern Hospital, Monash and Austin hospitals will be rephased, and three new community hospitals at Eltham, Emerald and Torquay are under review.

 

What about the housing crisis?

This year’s budget narrative reconfirmed the government’s commitment to building 800,000 homes over the next decade, as set out in Victoria’s Housing Statement released last year. The promised 800,000 dwellings in a decade target is ambitious, but there will continue to be doubt in its success until there is a stronger sense of where homes will be built and whether there will be enough workers to build them.

However, the $20 million funded for 2023/24 to boost planning resourcing was a one-off. It remains unclear how councils will be supported to process more development applications or how VCAT will clear its backlog of planning-related cases.

There was also $700,000 for this financial year and next for the Arden and East Werribee precincts to “activate government-owned land”, but at this stage, there is little further detail about government plans to optimise its land.

Victoria’s shared equity scheme for homebuyers has been extended for another financial year, until the Commonwealth’s own scheme kicks in next year.

A stand-alone land tax exemption for social and emergency housing has also been confirmed, which gives much-needed certainty to the housing sector.

There are no simple solutions to the housing crisis, but there are still more opportunities for the state to tap into.

Click here to read our submission to the Victorian Parliament’s Housing Affordability Enquiry

 

Our verdict

This budget is responsible – and it is responsive.

It has tapped into the needs and concerns of core voter groups, such as families battling to pay the bills, and growing anger as more women are killed by men known to them.

However, it was disappointing to see the overall effort to drive housing construction hasn’t lifted, which would improve affordability and make the market fairer.

Treasurer Tim Pallas has always treated his role as an opportunity to drive economic growth by making smart spending decisions and creating jobs. While serious cuts have been made, Pallas has stayed loyal to his cause.

Politically, the 2024/25 budget won’t stand out in the memories of Victorians in the medium or long-term.

Given the fiscal challenges the Allan Labor Government is dealing with, that’s not a bad outcome.

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