State Budget 200809 - Overview

							                         State Budget 2008/09 - Overview
Containing new initiatives to reduce business costs, meet the challenges of a
growing population and its pressures on improved transport, education and health
care, VECCI has broadly welcomed the release of the 2008/09 State Budget.

This year’s Budget maintains the Government’s commitment to responsible
economic management with a forecast operating surplus of $828 million for
2008/09 and surpluses averaging $907 million over the following three years - this
will assist in underpinning business and investor confidence going forward.

Total revenue is expected to increase by $1.6 billion or 4.1 per cent a year on
average over the Budget and forward estimates period (to 2011/12). In terms of the
sources of revenue growth, grants from the Commonwealth are forecast to rise on
average by 5.2 per cent a year over this period and total taxation revenue grow, on
average, by 3.8 per cent a year*

Total outlays are similarly forecast to increase by an average of $1.6 billion or 4.1
per cent a year, over the forward estimates period.

Net debt will increase to fund major infrastructure projects – rising from 2.2 per cent
of Gross State Product (GSP) in June 2008 to 7.1 per cent in June 2012. However,
this level will be well below the average of most other States until 2011 and has not
led ratings agencies to readjust their rating of Victoria’s financial and credit
worthiness from AAA.

Net infrastructure investment is estimated to increase by $4.0 billion in 2008/09
and average $4.4 billion a year to 2012. Major new expenditure includes:

•    $1.8 billion for improvements to Victoria’s transport infrastructure, including $794
     million for the public transport network, rail freight and port projects.
•    $769 million for better roads.
•    $592 million to build. Replace or renovate 128 schools across the State.
•    $466 million for hospitals, health and aged care facilities, as well as extra funding
     for maternal and child health services.
•    $733 million for prisons, police and the State’s justice system.




*
   VECCI notes that payroll tax revenue is projected to grow by 5.9 percent a year on average to 2011/12. This reflects the
Government’s view of expected employment and wages growth. However, given that the Budget papers also forecast a slowing in
employment growth over the forward years, it would appear the risk of higher wages in the economy generally is to the upside.
Reductions in Business Costs
The 2008/09 Budget contains new measures to reduce business costs.

As sought by VECCI, the Budget has announced a fifth consecutive reduction in
WorkCover premiums, which will fall by 5 percent, from 1 July 2008. This will take
the industry average rate to 1.387 per cent and save employers $352 million over the
next four years.

As also sought by VECCI, the payroll tax rate will fall to 4.95 percent, effective 1
July 2008. This reduction is estimated to benefit around 28,000 businesses, with
savings of $170 million over four years.

Land tax relief worth $490 million over four years has also been announced. The
key changes include:

•   A reduction in the top rate of land tax from 2.5 per cent to 2.25 per cent.
•   An adjustment to land tax thresholds of approximately 10 percent. A business
    with land valued at $2 million will save $1,405 per annum in land tax while a
    business with land valued at $4 million will now save $7,505.

Other taxation measures include:

•   $422 million in stamp duty relief with a reduction of approximately 10 per cent to
    all stamp duty on land transfer thresholds.

Responding to Climate Change
The 2008/09 Budget includes $295 million for initiatives to help Victoria meet climate
change and other environmental challenges.

These measures include:

•   As sought by VECCI, additional funding ($110 million over six years) for a carbon
    capture and storage program under the Government’s Energy Technology
    Innovation Strategy (ETIS).
•   $72 million over six years for the large scale demonstration of sustainable energy
    technologies across the State.
•   $12 million for the Clean Coal Authority in the La Trobe Valley.
•   $14.4 million to support the operation of the Victorian Renewable Energy Target
    and the Victorian Energy Efficiency Target Schemes.

The Budget also confirms funding for previously announced commitments to new
water infrastructure projects across the State, including:
•   $117 million for the first stage of the desalination plant at Wonthaggi.
•   $129 million for new water pipelines, including $99 million to fast-track the
    Wimmera-Mallee pipeline project.
•   $600 million for the Food Bowl Modernisation project.




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Road, Public Transport and Freight Improvement
The 2008/09 Budget provides $756 million for a range of road, public transport and
freight improvement projects. They include:

•   $224 million to upgrade regional and rural roads, including:
    o   $110 million towards the duplication of the Princes Hwy West from Waurn
        Ponds to Winchelsea.
    o   $40 million to build a new duplicated section of the Western Highway from
        Melton to Bacchus Marsh.
    o   $9 million towards the Yarra Glen Truck Bypass.
•   $254 million for ongoing maintenance of the regional rail network.
•   $239 million for a range of rail freight and port access projects, including $12.4
    million for the Geelong Rail Access improvement program for standard-gauge rail
    connection into the northern part of the Port of Geelong.
•   $150 million, announced last year, towards costs associated with the channel
    deepening project. VECCI is disappointed no further funding was announced.

The 2008/09 Budget also invests $794 million in public transport through a range of
initiatives that include:

•   The construction of a passing loop around Westall station and an upgrade of the
    track at Laverton and Craigieburn stations, allowing more morning peak services
    to run on these lines.
•   An extra 1,700 parking spaces at train stations in Melbourne’s outer suburbs.
•   $101 million to improve bus services throughout Victoria, as well as $38 million to
    extend the existing bus and tram priority program.
•   $112 million to relieve congestion through the previously announced Keeping
    Melbourne Moving plan (that includes an extension of clearway times and more
    walking and cycling options).

Education and Training
The 2008/09 Budget contains a number of measures to boost education and skills.
Among these measures are:

•   $25 million to extend the Apprenticeship/Traineeship Completion Bonus program
    for another 12 months.
•   $7.3 million to improve Year 12 completion rates through more support for
    Vocational Education and Training in schools.
•   $2.1 million for a new Green Plumbing Training Centre.
•   $5 million for one year for a New Workforce Partnerships program, matching
    jobseekers to employers who have difficulty recruiting.
•   $40.2 million for a range of TAFE upgrade projects.
•   $815.6 million funding for schools, kindergartens and childcare, including a
    $592.3 million capital works program to rebuild, renovate or extend 128 schools
    across Victoria including new schools in growth corridors, and $49.9 million to
    boost early childhood services.




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Tourism, Events and Natural Assets
The 2008/09 Budget aims to boost Victoria’s profile in domestic and international
markets, provide better and safer access to the State’s world class parks and
reserves. Among the new initiatives are:

•   $13.3 million over four years to support the marketing of the tourism sector in
    regional Victoria to the domestic markets.
•   $8 million over four years to promote Victoria in key international markets in both
    traditional and emerging markets, and to attract additional air services to
    Melbourne.
•   $10.8 million over two years to further increase business tourism to Victoria.
•   $3 million to host the 2009 Australian Tourism Exchange to be held at the new
    Melbourne Convention Centre.
•   $60 million to upgrade 300 bridges in Victorian parks and reserves.
•   $10.7 million to enhance Victorian National Parks and Conservation Reserves,
    including $3 million over four years to create a new 27,000 hectare Cobbobonee
    National Park and Forest Park in Victoria’s south-west.
•   $110 million to the Natural Resources Investment program to support volunteer
    groups, agencies and regional communities to undertake activities that address
    key environmental issues including conserving species and habitat, water quality
    and responding to climate change.
•   $5 million to upgrade key facilities around Port Phillip Bay and enable the
    development of investment models to revitalise Port Philip and Westernport Bay
    tourism and industry-related facilities.

Regional Victoria
Measures to support and promote regional Victoria include (some measures
previously mentioned in the Road, Public Transport and Freight Improvement section
above):

•   $47 million to improve regional rail freight connections.
•   $224 million to upgrade regional roads.
•   $16 million for major upgrades at eight small rural schools.
•   $278 million to maintain and improve regional passenger rail infrastructure.
•   $13 million over four years to support the tourism industry and local event in
    regional areas.

Other initiatives include:

•   $205 million for the Future Farming Strategy to deliver better services to farmers,
    boost agricultural research, and improve productivity, innovation and
    competitiveness.
•   $137 million to improve regional health care services.
•   $80 million to help provincial communities recover from bushfires and improve
    prevention and response capabilities for the future.
•   $3,000 for a Regional First Home Bonus for first home buyers purchasing newly
    built homes in regional Victoria.



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•   $57 million for initiatives designed to ensure regional and rural communities are
    attractive places for people to live, work and do business, including $25 million
    over four years for the Geelong Transit City project and $6 million over two years
    to help the Geelong region adjust to the contracting car manufacturing industry.

Economic Outlook
According to the Budget forecasts, the Victorian economy is expected to grow by
3.25 per cent in 2007/08, lower than the consensus forecast for national economic
growth of 3.7 per cent. This moderate growth follows on from 2006/07 when Victoria
recorded the strongest growth of the non-resource states.

Following moderate expansion in 2007/08, economic growth is expected to settle at
a trend growth rate of around 3 per cent in the forward years. National economic
growth is also forecast to ease over this period.

Economic growth over the next two years is expected to be relatively broad-based,
with contributions from the business sector, residential housing investment and
household spending, as well as a moderate recovery in the rural sector.

Slower growth is expected to result from more moderate household consumption
growth resulting from higher interest rates and petrol prices, and moderate dwelling
investment. Non-residential building construction is expected to be the main driver of
near-term business investment growth.

Looking ahead, Victorian export growth is expected to be affected by the combined
influences of weaker global growth and the high Australian dollar. Some rebounding
in farm incomes is anticipated due to the strength of agricultural commodity prices.
Victorian service exports are forecast to perform well in light of the strength of
demand in key markets like China and India.

The labour market is expected to perform solidly but will be tempered by weaker
domestic demand. Employment growth is forecast to slow from recent above-trend
rates, with the unemployment rate expected to increase slightly over the forecast
period. Population growth is projected to be slightly higher over the short-to-medium
term, mainly due to higher forecast net overseas migration.

Upward pressure on wages growth is expected to remain in the short-to-medium
term, resulting from historically high unemployment, higher inflation expectations and
continued difficulties in attracting and retaining labour.

Price growth is expected to remain high over the short term before easing over the
later forecast period.

The Budget identifies a number of potential risks to the Victorian economy over the
forward period, including recovery in the rural sector, oil price volatility, wage and
inflationary pressures, exchange rate movements and uncertainty surrounding the
global economy and financial markets.


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