The 2006/07 State Budget
2006/07 State Budget
The 2006/07 State Budget was handed down on Tuesday May 30, 2006.
The State Budget has delivered a sound fiscal outcome, with a $317 million surplus announced
for the 2006/07 financial year, and average surpluses of $316 million through to 2009/2010.
VECCI has secured significant wins for business in the 2006/07 State Budget. We lobbied
actively to secure much needed tax relief – particularly in relation to WorkCover premiums,
Payroll Tax and Land Tax. We called on the State Government to address the State’s growing
skill shortages, put forward initiatives to reduce business red tape, and stated the need for
additional spending on road and rail projects to reduce infrastructure bottlenecks.
Our lobbying efforts have been rewarded with the Government delivering on our key pre-budget
submission recommendations. We can report the following outcomes for our members:
• An average 10 per cent cut in WorkCover premiums. The average premium will now be
1.62 per cent, the second lowest in Australia. This is the third successive WorkCover
reduction we have secured for business.
• A 20 per cent reduction in the middle land tax rates, and a reduction in the top land tax rate
to 3.00 per cent.
• A reduction in the payroll tax rate from 5.25 per cent to 5.00 per cent over 3 years.
• A 15 per cent reduction in the red tape burden on business over the next 3 years, and a
target of a 25 per cent reduction over 5 years.
• A series of new measures designed to attract and retain new apprentices and trainees.
Reforms to increase labour participation rates and boost funding for schools and VET.
• $2.6 billion for major improvements to Victoria’s transport infrastructure.
Other highlights of the 2006/07 Budget for business include:
• $502 million in funding to deliver a range of new projects in provincial Victoria.
• $52 million in funding to attract major events and support Victoria’s existing calendar of
major events over the next 4 years.
• $12 million over 4 years for new tourism campaigns to promote Melbourne and Victoria.
• $24 million over 4 years for small business programs aimed at business innovation.
Victoria’s economic fundamentals are solid, particularly as the State has not been one to
benefit from the resource boom. Recent growth has been driven by business investment,
population growth and steady employment growth.
The Treasury Department have forecast Victoria’s Gross State Product (economic growth) to
be 2.50 per cent in the current financial year, this is forecast to rise 0.75 per cent to 3.25 per
cent in 2006/07 with a further 0.25 per cent increase forecast for 2007/08, taking the State’s
economic growth rate to 3.50 per cent.
Treasury is forecasting inflation to fall from 3.00 per cent in 2005/06 to 2.50 per cent in 2006/07
and remain there until 2009/10. We consider the Government’s inflation forecasts may be
overly optimistic given the likely future flow-through of cost pressures (petrol prices and interest
rates) on prices.
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2006/07 State Budget
Employment is forecast to grow by 1.25 per cent in 2006/07, rising to 1.5 per cent in 2007/08.
The unemployment rate is expected to stabilise at 5.5 per cent in 2006/07, dropping to 5.25 per
cent in the following years.
The Budget papers flag a number of potential risks to the Victorian economy over the forward
period, including potential movements in domestic and foreign interest rates, the price of crude
oil and the Australian dollar. These risks to growth are similar to those reported by VECCI in
the Visa-VECCI Business Trends and Prospects Survey.
Economic and Fiscal Management
An operating surplus of $317 million is forecast for 2006/07, with surpluses averaging $316
million over the following three years – this will assist in underpinning business and investor
confidence going forward.
Total expenses will rise by 4.5 per cent over 2006/07 while total revenue will rise by 4.0 per
cent over the same period. Taxation revenue is projected to increase by 1.9 per cent in
2006/07 relative to the revised estimate for 2005/06.
Non-financial public sector net debt is projected to grow from $5.17 billion at June 2006 to
$6.55 billion by June 2007. General Government net debt will increase from 0.9 per cent of
Gross State Product (GSP) to 2.5 per cent of GSP by 2010, due to new funding for major
infrastructure projects. However, the level of net debt will remain lower than that experienced
in recent times – 3.1 per cent in 1999 and 15.9 per cent in 1995.
Taxation and Business Cost-Cutting Measures
The State Government has announced business cost relief, including $167 million worth of land
tax relief over four years, $533 million in payroll tax savings over four years, and $170 million in
reduced WorkCover costs in 2006/07.
The payroll tax rate will fall from 5.25 per cent to 5.00 per cent over three years. This means a
small business with 40 staff will save around $2,625 per annum, while a larger employer with
500 staff will save around $48,625 (illustrative example only).
A range of land tax initiatives were announced, including:
• A 20 per cent cut to middle land tax rates:
• The 1.0 per cent rate (starting at $900,000) will be cut to 0.8 per cent.
• The 1.5 per cent rate (starting at $1.9 million) will be cut to 1.2 per cent.
• The 2.25 per cent rate (starting at $1.62 million) will be cut to 1.8 per cent.
• Bringing forward by 1 year the previously announced reduction in the top marginal rate from
3.5 per cent to 3.0 per cent.
• The capping of increases in land tax liabilities in 2006/07, so that no payer of land tax will
experience an increase in their land tax liability greater than 50 per cent for the 2006 land
tax year, with respect to the same properties.
• Eliminating the use of indexation factors, which are used to adjust land valuations across
entire municipalities in non valuation years.
• Enabling taxpayers to appeal their land valuation by bringing forward the use of land
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2006/07 State Budget
Business will save $170 million a year from a 10 per cent reduction in average WorkCover
premiums in 2006/07. This will result in savings to a small business with 40 staff of around
$2,880, while a larger employer with 500 staff may save up to $36,000 (illustrative examples
only – based on average industry rate). This is the third successive cut in WorkCover
premiums in as many years.
Red Tape Reduction
Reducing the regulatory burden on businesses was one of the top 10 priority issues raised by
VECCI members in a pre-Budget survey we conducted last year. We addressed these
concerns in our pre-Budget submission, providing a set of regulatory reform recommendations
to the Government. The Government has announced it will implement a number of these
• A target of a 15 per cent reduction in the amount of paper work required to be completed by
businesses over the next 3 years.
• A requirement that any new regulation needs to be matched with the removal or off-set of
an existing piece of legislation.
• The introduction of financial incentives for Government departments to encourage them to
simplify business processes.
VECCI has long supported infrastructure improvements to drive economic growth within the
State. The 2006/07 Budget is set to deliver the largest capital works program in the State’s
history. In 2006/07, $4.9 billion will to be invested on infrastructure projects across the State.
Major beneficiaries of infrastructure funding grants will be road, rail and public transport,
education and training, water, health and community services.
Road, Rail and Public Transport Infrastructure
The Transport and Liveability Statement released by the State Government in early May 2006
announced the Government’s intention to commit $10.5 billion over the next 10 years towards
upgrading the State’s transport network. The 2006/07 Budget kick starts this initiative; it
delivers $2.6 billion in funds towards a number of road, rail and public transport projects. Major
beneficiaries of the funds include:
• $737 million in funding towards an upgrade of the Monash-West Gate road corridor to boost
capacity, reduce congestion and improve travel times.
• An additional $176 million in new road funding for the outer-growth suburbs.
• $115 million in funding directed to provincial Victoria for road and bridge projects.
• $32.8 million to boost country bus services.
• $5 million for a review of the East-West transport corridor.
VECCI is disappointed that no funds have been set aside for the Port Phillip Bay channel
deepening project. We remain concerned with the continued delays in the project and will
continue to lobby the Government on this important issue.
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2006/07 State Budget
Education and Training Infrastructure
The Budget provides $1.2 billion over 5 years in fresh funding for education and training
purposes. Specific initiatives included in the Budget that are welcome include:
• $448 million in funding to be directed towards school and TAFE construction and
• A new $500 ‘Trades Bonus’ for year 1 apprentices to reduce the drop-out rate.
• 1,800 extra TAFE places for mature aged persons.
• 3,500 extra VET places.
• 4,500 extra apprenticeship places.
$160 million in funding will be put towards infrastructure projects designed to secure water
supplies for metropolitan and regional Victorian consumers. Major infrastructure projects to be
carried out include:
• $50 million in funding towards the Gippsland Water Factory.
• $50 million towards the Wimmera-Mallee water pipeline.
• $30 million for a new water pipeline to secure Bendigo’s long term water needs.
The 2006/07 provides $73 million of funding for tourism related initiatives, including:
• $50 million increased funding over four years to attract new events to the State.
• $12 million over four years for a Marketing Melbourne and Victoria campaign.
• $8.1 million over two years to maximise the use of the new Melbourne Convention Centre
through the attraction of significant business events; and
• $1.9 million over four years in additional funding for the Victorian Major Events Company.
In addition to this, through the Moving Forward Statement, $27 million has been allocated to
support regional tourism, including investment in regional marketing, tourism signage and
tourism skills, and a Provincial Pathways program to create new rail trails and walking tracks.
A number of environmental initiatives will also benefit the tourism industry, including:
• $20 million for a new facility for the fur seals at Melbourne Zoo.
• $13.3 million to establish three new metropolitan parks and upgrade Point Gellibrand.
• $4.8 million to upgrade facilities in Victoria’s caravan parks and camping grounds.
Small Business, Exports and Investment
The Budget provides $24 million over four years for a package of small business programs
designed to simplify business interaction with Government, and improve critical business and
management skills. (Specific details of this initiative will be released later in the year).
The Government has announced $15 million in funding for the design industry, to increase
global competitiveness, particularly for small to medium enterprises.
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2006/07 State Budget
Funding of $5.6 million over five years is provided for the establishment of a Victorian
Government Business Office in Bangalore, India.
Funding of $1.4 million was announced to support the APEC Regional Finance Centre.
Rural and Regional Victoria
• The State Budget confirms $502 million in funding for the Moving Forward Statement, which
was released in November 2005. Moving Forward provides for funding to improve skills,
industry and infrastructure in regional Victoria, including:
• $100 million for a new Provincial Victoria Growth Fund.
• $62 million to improve regional Victorian ports.
• $43 million for initiatives to enhance skills, expand training opportunities, and address skill
• $46 million to support growth and competitiveness in key primary industries.
Health and Community Services
Health and community services received a considerable amount of funding in the Budget.
Major upgrades to hospitals, community health centres and outpatient facilities were
announced. In addition, law enforcement received a boost with additional funds being allocated
towards new police stations, crime fighting and anti-terrorism measures. The major funding
grants were as follows:
• $847 million to rebuild the Royal Children’s Hospital.
• $56.3 million towards upgrading the Royal Melbourne Hospital’s emergency department.
• $170 million over 5 years for mental health.
• $109 million to increase security at prisons and courts.
• $21.3 million to be spent on new police stations and upgrading existing police stations.
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