Victoria budget: treasurer announces $23.3bn deficit and record spending amid coronavirus recession

Despite forecasting a record $23.3bn deficit, the Victorian government is predicting a stunning rebound in the state’s financial fortunes, pledging to create 200,000 new jobs in two years and promising $19.8bn in spending.

The big commitments include $1.4bn for a new contemporary art gallery in Melbourne, stamp duty reductions for houses of $1m or less, and land tax discounts for housing developments targeted at renters.

The budget also includes a tax credit scheme intended to encourage businesses to hire new workers. The scheme would provide businesses with a payroll of $10m or less with 10c on the dollar back, for every dollar spent on wages over the next two years which is higher than the previous year’s tax bill.

The treasurer, Tim Pallas, said it would have the effect of significantly reducing payroll tax, saving businesses an estimated $836m. He could not say what protections would be in place to prevent employers from sacking existing staff and hiring them back to get the tax credit.

The measure is on top of $1bn in payroll tax waivers for small businesses since March this year.

A $5.3bn public housing investment and $2.2bn to begin preliminary work on the suburban rail loop were already announced. Pallas said substantial work on the suburban rail loop would not begin until the government had received a mandate at the 2022 state election.

Delivering his budget speech to parliament, Pallas said an increase in government spending was necessary to see the state through the coronavirus recession, saying “now is not the time to deliver a budget in surplus”.

Net debt is forecast to reach $87bn in 2020-2021, rising to $154.8bn – or 28.9% of gross state product– in 2023-2034. Pallas said paying the interest on that debt would cost just 4.4% of GSP, and they were anticipating that interest rates would remain low.

The Andrews government had previously pledged to cap net debt at 12% of GSP.

“We are putting our credit rating to work when it’s needed most – to help Victorians now and into the future,” Pallas told parliament. “We are borrowing to make the necessary investments to drive a quicker and stronger recovery.”

Pallas said 2020 had showed the resilience of Victorians, and he paraphrased US president-elect Joe Biden: “After a year of turmoil, this budget is a triumph of hope over fear.

“When we act together, there is no challenge too great, no prize too unobtainable for the Victorian people.”

Victoria lost 180,000 jobs between the March and September quarters in 2020. Economic output fell 0.25% in 2019-2020 and is forecast to fall by a further 4% in 2020-2021, before rebounding by a staggering 7.75% in 2021-2022.

Unemployment is forecast to peak at 8.35% next month and level out to 7.75% next year. Women and young people are worst affected. Employment of women fell by 6.7% in 2020, compared with a 3.9% drop in the employment of men, and employment of people under the age of 30 fell by 12.1%, compared with 4.9% for those over 30.

Included in $2.4bn in jobs spending is $150m to support business to hire 6,000 woman, and a $10m fund to provide startup capital for female entrepreneurs.

A $170m free kindergarten program, $82m to boost after school care, $5.6bn in education funding, and additional funding for new child protection workers and domestic and sexual violence counsellors was also earmarked as benefiting women.

The budget lists a record $357m in spending for Aboriginal Victorians, including $40m for the Aboriginal community-controlled health sector, $22.6m to support traditional owners’ coronavirus response and recovery, and $10m for the stolen generations redress scheme. It also includes $11.6m to fund the treaty process and $25.1m for settlements under the traditional owner settlement act.

Responding to Covid-19 will cost police almost $40m this financial year while the cost of delays to the court system caused by Covid-19 is forecast to be $26m.

The Victorian Council of Social Services called it an “inequality crushing” budget.

“This budget is literally brimming with positive, smart and effective social policy measures that will make real inroads into poverty and disadvantage,” chief executive Emma King said. “The pandemic has made bold interventions a necessity, and the government isn’t missing its shot.”