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Treasurer Tim Pallas handed down his second State Budget on Wednesday 27 April, 2016.
This is the Andrews Government’s second budget. Key themes are jobs, schools, hospitals, family violence and transport and the overarching theme of the budget is “Getting it done”.
The Master Builders Media Release in reponse to the state Budget was titled Positive for infrastructure, but crucial planning and housing issues still to be addressed.
The Treasurer will be providing Master Builders’ members with an outline of the State Budget at our next Industry Breakfast on Wednesday 8 June.
The budgeted operating surplus sits at $2.9 billion, and surpluses are set to average $2.1 billion a year over the forward estimates. The government has stated that these surpluses will be delivered by ensuring average revenue growth of 3.4 per cent is greater than average expenditure growth of 3.3 per cent.
This budget maintains Victoria’s Triple A Credit Rating, with net debt forecast to fall from 5.9 per cent of GSP this year, to 4.8 per cent by June 2020.
The average government infrastructure investment is $7.4 billion each year for the next four years compared to the average of $4.9 billion over the preceding 11 years.
Figure 1: General government fiscal aggregates
Source: Victorian Budget 16/17, Budget Paper No.2, p 13
Economic outlook
Low interest rates, steady population growth, growth in employment and strengthening household budgets are contributing to consumer spending. The increase of new housing activity over the last year coupled with a sustained strong rate of dwelling approvals have also contributed to an improvement in the Victorian economic outlook.
Economic growth is forecast to rise to 3 per cent in 2016-17 on the back of solid business investment and housing consumption. This growth figure is up from 2.5 per cent in 2015-16, and 2.25 per cent the previous year.
Employment in Victoria is going strong, over the past three years the number of people in full-time employment has risen by 2.5 per cent in Victoria and the number of Victorians with a job exceeded 3 million for the first time in March 2016.
Victoria’s population is growing faster than any other state or territory, increasing by 1.7 per cent in 2014-15, which equates to more than 1700 people each week.
Figure 2: Victorian Economic Forecasts
Source: Victorian Budget 16/17, Budget Paper No.2, p 16
Master Builders notes with caution that the Government is relying heavily on income from land transfers to fund much of these new initiatives. As demonstrated in Figure 3 below, over 40 per cent of the total taxation revenue is sourced from taxes related to the property sector such as land transfer duty and land tax. The income from this tax is forecast to increase over the coming years.
While we are pleased that this indicates confidence in the property sector, caution should be had towards an overreliance on the property market. Given the reliance on the property sector for taxation revenue, it is imperative that the Government supports the sector through policy initiatives.
Figure 3: Taxation Revenue
Source: Victorian Budget 16/17, Budget Paper No.5, p 25
Summary of relevant issues to Master Builders Association of Victoria
The Government announced a raft of spending, including up to $12.4 billion to building infrastructure projects such as schools, hospital and health facilitates, expanding the rail and road networks. They estimate the infrastructure spend may create up to 15,000 jobs in the short term – but it should be noted that many of these major projects will not commence work for several years. The bulk of these projects are in Melbourne metropolitan areas but there are some regional-specific allocations as well.
Given the ABS building approvals data shows non residential building stagnating, investment in major building and construction projects are welcome (although they are spread over the forward estimates).
These points are discussed in more detail below.
Other points of interest outlined in the budget for our industry include:
- Increase in the payroll tax threshold, set to benefit around 36,000 businesses
- A payroll tax exemption for employers who take on retrenched apprentices or trainees
- $26 million investment to reduce planning delays from an average 120 days to 60 days
- $50 million for the Growing Suburbs Fund, to fund construction of local projects in growth areas.
Infrastructure
The government has stated that the infrastructure focus of the budget is driven by the need to keep up with the growth in population and demand, however, much of the spending is allocated over time and is not ‘shovel ready’.
Figure 4 below summarises the 2016-17 Victorian Public Sector Capital Program (excluding PPPs).
Figure 4: Infrastructure investment by total estimated investment – summary
Source: Victorian Budget 16/17, Budget Paper No.4, p 6
The government has stated that the infrastructure focus of the budget is driven by the need to keep up with the growth in population and demand, however, much of the spending is allocated over time and is not ‘shovel ready’.
Melbourne Metro Tunnel
The centre piece of the Budget is the fully funded Melbourne Metro Tunnel, touted as the biggest transformation to our public transport system since the construction of the City Loop.
The Budget commits $2.9 billion over the forward estimate to progress construction of the projects, with the balance fully committed in capital expenditure beyond the forward estimates.
The project will allow more trains to run in and out of the city by giving the Cranbourne, Pakenham and Sunbury lines their own tunnel through the CBD. It includes two nine kilometre tunnels under the CBD and five new underground stations, with two directly connected to Flinders St and Melbourne Central.
This spend also fully funds the purchase of sixty-five new high capacity trains to run on the lines.
Melbourne’s Roads
The budget includes $6.2 billion package of works to ease congestion on suburban and outer suburban roads and reduce travel times.
This includes $1.6 billion to build the Western Distributor Project, a second river crossing for Melbourne that is expected to cut travel times by 20 minutes to and from Geelong.
The Monash Freeway will be widened from four to five lanes each way and new technology installed to form the nation’s longest stretch of managed motorway, which is hoped to reduce travel times in Melbourne’s south east. This upgrade is expected to create 400 jobs during construction.
$237.9 million of new major road upgrades were announced in the budget, to take place across suburban Melbourne. These include:
- $38.4 million to duplicate Hallam Road between Orman Road and the South Gippsland Highway and undertake a major upgrade to the intersection of Hallam Road, Evans Road and South Gippsland Highway
- $50.1 million to upgrade Dohertys Road in Laverton North to increase the road from two lanes to four lanes between Fitzgerald and Grieve Parade
- Up to $139.4 million for Plenty Road in Mill Park to expand the road with an additional lane in each direction between McKimmies Road and Bridge Inn Road.
Regional Roads
Deteriorating and unsafe roads will receive $130 million for repair and resurfacing, and $51.6 million will build new overtaking lanes along key regional highways including the Princes Highway East at Orbost and the Midland Highway at Merideth and Mansfield.
While not fully funded, planning is set to commence on key projects – $52 million has been allocated to a package of works that includes the duplication of Barwon Heads Road and transport improvements on Phillip Island.
The budget also includes:
- $107.6 million to building the six kilometre Drysdale Bypass
- $30.48 million for the duplication of Napier Street in Bendigo between Weeroona Avenue and Hall St
- $4.5 million to improve the intersection at Strathfieldsaye
- $200 thousand for an intersection study at Romsey
- $4 million to see planning work start to extend the Geelong Ring Road to the Bellarine Peninsula
- $625 thousand for planning and development for the replacement of the Yarrawonga and Mulwala Bridges
- $1.1 million for planning for the replacement of the Tooleybuc Bridge over the Murray River in Piangil
Rail
In addition to funding for the Metro Tunnel, the budget provides $587.7 million to fully fund and deliver the Mernda Rail Extension.
The Mernda upgrade will build around eight kilometres of duplicated track between South Morang and Mernda, and stabling facilities for trains north of Bridge Inn Road. A new Premium Station will be built in Mernda, a second will be built near Marymede Catholic College.
$140.2 million has been allocated to duplicate 1.2 kilometres of single track rail section of the Hurstbridge line, between Heidelberg and Rosanna, with a new tunnel to be constructed alongside the existing tunnel in Heidelberg.
Regional Rail
The budget has allocated $518 million to upgrade the Ballarat line. The line will be duplicated for 17 kilometres, from Deer Park to Melton. Three kilometres of track west of Warrenheip will also be duplicated, and three additional crossings will be built at Bacchus March, Ballan and near Bungaree.
Signage, disability access and other real passenger improvements will be made at stations along the Gippsland line and the viability of more car parking will be investigated at Moe, Morewell and Traralgon stations. Bendigo Station, near Eaglehawk Station will also be improved.
Of note, the budget also mentions the pending release of the Regional Network Development Plan in the coming weeks.
Schools
Education is a large part of the budget, with over $924 million being invested in building new schools and upgrading classrooms. The package includes:
- $287 million to acquire land to build or complete 23 new schools, many in Melbourne’s growth areas
- $92 million to establish 10 Tech Schools at Tafes and Universities, including four in regional Victoria
- $68.5 million to upgrade 20 specialist schools in the poorest condition
- $28 million to continue removing asbestos from school buildings
- $12 million to plan upgrades at 35 existing schools to accommodate growth and update old facilitates.
Of this spending, $200 million is targeted at regional schools.
Taxation
This budget announced a payroll tax cut aimed at boosting businesses and supporting apprentices and trainees get qualifications.
The change means that the tax free payroll threshold will incrementally rise from $550,000 to $650,000. Once fully implemented it is expected that around 2,800 businesses will no longer pay payroll tax at all.
The first increase to $575,000 will take effect on 1 July 2016, with incremental increase until the tax free threshold reaches $650,000 on 1 July 2019-20.
Also included in the budget is a further payroll tax exemption to employers of displaced/ retrenched apprentices or trainees. It is estimated that between 4000 to 5000 apprentices are displaced from their training each year.
This change means that wages paid by employers to a retrenched apprentice or trainee will be exempt from payroll tax from 1 July 2016.
Regional Victoria
A summary of investment in regional Victoria is provided by the Government in the Budget Overview.
