Treasurer Tim Pallas handed down his third State Budget on Tuesday 2 May, 2017.

This is the Andrews Government’s third budget. Key themes are family violence and crime, and the overarching theme of the budget is “Getting on with the job.”

The Master Builders media release in response to the State Budget is titled “Good signs for the future of building and construction”.

The budgeted operating surplus sits at $1.2 billion, and surpluses are set to average $2.4 billion a year over the forward estimates. The government plans to achieve this by collecting $63.4 billion in revenue, and spending $62.3 billion on service delivery. Revenue growth is expected to average 3.7 per cent a year over the next four years, exceeding average expense growth of 3.2 per cent a year.

This budget maintains Victoria’s Triple A Credit Rating, with the net debt level being maintained as a per cent of GSP, and set to be no higher than 6 per cent over the next four years.

The average government infrastructure investment is $9.6 billion each year for the next four years, nearly doubling the annual expenditure of $4.9 billion spent per year over the preceding decade.

Figure 1: General government fiscal aggregates

Source: Victorian Budget 17/18, Budget Paper No.2, p 22

Economic outlook

Employment in Victoria has grown strongly- in the year to March 2017, average employment grew by 3.4 per cent – the strongest among the states – and our regional labour market is one of the strongest, growing by 2.1 per cent in 2016. Strengthening household budgets, coupled with low interest rates and steady population growth, are contributing to consumer spending. The increase of new housing activity over the last year, coupled with a sustained strong rate of dwelling approvals, has also contributed to an improvement in the Victorian economic outlook.

Victoria’s economy is one of the strongest in Australia, having experienced 3.3 per cent growth in 2015-16, significantly above the national average of 2.7 per cent over the same period.

Victoria’s population is growing faster than any other state or territory, increasing by 2.1 per over the year to June 2016.

Figure 2: Victorian Economic Forecasts (per cent)

Source: Victorian Budget 17/18, Budget Paper No.2, p 26

Master Builders notes with caution that the Government is relying heavily on income from land transfers to fund many of these new initiatives. As demonstrated in Figure 3 below, 45 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 taken to not overly rely on the property market. Given the reliance on the property sector for taxation revenue, it is imperative that the government safeguards the sector for the future through funding policy initiatives.

Figure 3: Taxation Revenue ($ million)

Source: Victorian Budget 17/18, Budget Paper No.5, p 19

Summary of issues relevant to Master Builders Association of Victoria

The Government announced a raft of spending, including up to $9.6 billion to build infrastructure projects such as schools, hospital and health facilities, and expanding the rail and road networks. They estimate the spending will create thousands of jobs across hundreds of projects in metro and regional areas.

These points are discussed in more detail below.

In addition to infrastructure announcements, other points of interest outlined in the budget for our industry include:

• Bringing forward an increase in the payroll tax threshold, set to benefit around 38,000 businesses
• A further 25 per cent discount on payroll tax for businesses in regional Victoria
• $1.5 million to support jobs in the construction industry through a Future Industries Construction Technologies Sector Strategy
• $500,000 to encourage young people to gain skills and employment in the construction industry
• $8.2 million for Apprenticeship Support Officers.

Taxation

The $575 000 payroll tax threshold will be increased to $650 000 from 1 July 2018, which will benefit approximately 38 000 Victorian businesses.

In addition to this, businesses in regional Victoria will receive a 25 per cent discount on their payroll tax. The payroll tax rate will decrease to 3.65 per cent for businesses with payrolls that consist of at least 85 per cent regional employees. This will support regional employers to grow their businesses, and encourage further employment of workers in regional areas.

Infrastructure

This budget builds on the $30 billion infrastructure pipeline the Government announced as part of the 2016 Budget. The Government has committed to significant infrastructure investment towards a range of new buildings, roads and public transport initiatives.

Figure 4 below summarises the 2017-18 Victorian Public Sector Capital Program (excluding PPPs).

Figure 4: Infrastructure investment by total estimated investment – summary ($ thousand)

Source: Victorian Budget 17/18, Budget Paper No.4, p 5

Metropolitan infrastructure

$700 million for the M80 Ring Road

This investment will fund the final update of the M80 Ring Road, which will complement the North East Link. These upgrades are aimed to improve safety and reduce congestion for the 160,000 drivers who use the freeway daily. To better manage traffic flow, an electronic freeway management system will also be installed with overhead electronic signs to provide real-time information for drivers.

The M80 Ring Road will be upgraded between the Princes Freeway and Western Highway, Sydney Road and Edgars Road, and Plenty Road and Greensborough Highway.

This will see the M80 Ring Road fully upgraded, and will complement the new North East Link.

$498 million for new and upgraded health facilities and infrastructure

This funding will pay for new and upgraded health facilities, infrastructure and vital health equipment.

$100 million for planning the North East Link

North East Link aims to reduce congestion in Melbourne’s north, south and east, while the new West Gate Tunnel fixes traffic in the west.

The project will provide a north-south connection, catering for Melbourne’s future growth, while linking the eastern suburbs to the northern and western suburbs and the airport.

This budget allocates $100 million for the North East Link to get planning and pre-construction activities underway, ahead of procurement in 2018.

The North East Link Authority will use its expertise to plan for the necessary upgrades to surrounding key strategic roads in the network.

$12.4 million for Plan Melbourne implementation

Additional funding will be provided to ensure the implementation of Plan Melbourne 2017 2050 actions. The refreshed Plan Melbourne provides a long term strategic plan to manage the city’s growth and actions to ensure a greater focus on improving housing affordability and diversity, mitigating and adapting to climate change, supporting energy efficiency, and planning for the Government’s transport priorities.

Other infrastructure projects include

• $343 million in road maintenance funding to help fix roads throughout Victoria
• $300 million to build the Mordialloc Bypass, connecting the Mornington Peninsula Freeway at Springvale Road to the Dingley Bypass, diverting traffic away from residential areas in Aspendale Gardens and Mordialloc
• $96.6 million to build the next stage of upgrades to the Yan Yean Road, improving the capacity, safety and amenity of Yan Yean Road north of Kurrak Road
• $58.6 million to perform vital maintenance on the West Gate Bridge
• $7.7 million for repairing noise walls along the Monash, Eastern and Frankston freeways, and the South Gippsland Highway.

Skills and workforce

$8.1 million for Apprenticeship Support Officers

To improve retention and completion, Apprenticeship Support Officers offer advice and assistance to first year apprentices under 25 years old, on personal ad workplace issues, and work with Registered Training Organisations.

$1.5 million towards construction technology

This initiative will support jobs in the construction sector by accelerating delivery of the Future Industries Construction Technologies Sector Strategy. It capitalises on industry leadership, attracting companies to establish new prefabricated-construction manufacturing facilities and supporting the adoption of Building Information Modelling and other digital technologies.

$500,000 for workforce campaign

Funding will be provided to encourage young people to gain skills and employment in the construction industry, to support the workforce requirements of this sector now and in the future.

$110 million timber plantation in the Latrobe Valley

The government will invest $110 million to establish a timber plantation in the Latrobe Valley, to support the long-term sustainability of Victoria’s timber harvesting industry.

Regional infrastructure

In addition to $435 million for the Gippsland Rail Upgrade (which is contingent on federal funding) the Budget invests a further $556.4 million to improve roads in regional Victoria, including:

• $65.8 million to improve and conduct essential maintenance on roads in South Western Victoria, including the Great Ocean Road
• $50 million for major improvements to the South Gippsland Highway
• $49.2 million for upgrades to 23 major roads all across the State – including the Calder, Bass, Sunraysia and Princes Highways
• $40.8 million to upgrade 17 bridges throughout the State under the Stronger Bridges, Stronger Economy program
• $37.2 million to upgrade narrow sealed arterial roads throughout South Western Victoria
• $25.8 million to fund business cases for 43 regional and rural road upgrades
• $10 million for Stage 1 of the Shepparton Bypass
• $10 million for road construction projects around Portland in the Green Triangle in the State’s west.

Education

The Budget allows for $1.8 billion on new and upgraded schools including:

• $269.6 million to construct, plan and buy land for new schools, including many in growth areas
• $239.6 million to upgrade schools across the state
• A further $85 million for the asbestos removal program in schools
• $84.3 million for IT upgrades across our schools, providing the technology essential to teaching and learning.

Justice

• $360.7 million to strengthen youth justice facilities in Parkville and Malmsbury, and to build a new fit-for-purpose high security detention centre
• $308.1 million to bolster security around high-risk offenders, including detention and supervision schemes, and targeted intervention for serious offenders in custody
• $145.2 million to fund the needs of the expanded prison system, ensuring prisoner, staff and community safety, and reducing the likelihood of reoffending
• $122.9 million to improve public safety and care for the needs of offenders with mental illness
• $7.6 million to fund plans to expand and upgrade the Werribee Law Court and Bendigo Law Court so they can manage demand.

Hospitals

• $162.7 million to upgrade and expand inpatient infrastructure at the Northern Hospital
• $69.8 million to upgrade key infrastructure at the Austin and Royal Melbourne Hospitals
• $63.2 million to upgrade the Monash Medical Centre emergency department to better target care to children and adults
• $50 million to plan the new Footscray Hospital development, servicing the growing population in Melbourne’s inner west and for urgent works at the existing hospital
• $35 million for upgrading specialist medical equipment, including MRI and CT scanners in metropolitan and regional hospitals.

Housing affordability

Funding the Home for Victorians package:

• $851 million to abolish stamp duty for first time buyers of homes valued up to $600 000, and cuts to stamp duty on homes valued up to $750 000
• $50 million to double the First Home Owner Grant to $20 000 in regional Victoria to support up to 6 000 first home buyers, making it easier for young people to build and stay in their community
• To give renters greater long-term security, the Government is making long-term leases a reality, by funding:
o a new optional standard long-term lease agreement available for landlords and tenants wishing to enter into arrangements of more than five years
o a dedicated website to connect landlords and tenants interested in a long-term lease.