RSM Australia

Victorian state budget review 2015

The bottom line

The Victorian budget 2015-16 continues the prudent management of Victoria’s budget and the key goal of maintaining our AAA credit rating.

The budget shows a projected surplus of around $1.2bn for 2015-16. This is on the back of an expected surplus of around $1bn for 2014-15.

The three key economic management policies of the new Labor Government were:

  • budgetary surpluses
  • no new taxes
  • no new debt

These have been delivered in various forms.

How are the government’s promises being paid for?

The surpluses are being delivered by:

  • studious timing and deferral of major capital projects
  • continued buoyancy of the property market
  • levy (read tax) on overseas property buyers
  • windfall from grants commission
  • increased dividends from government business enterprises $619m (no dividend from Victorian WorkCover Authority), mainly from Transport Accident Commission and State Electricity Commission of Victoria

What are we buying?

The government seems manic in ensuring that it meets all of its election commitments. Apart from the plethora of announcements made prior to the budget being handed down, highlights of the budget include:

  • $200m new womens and children’s hospital
  • $688m to upgrade and perform maintenance on schools
  • $300m TAFE rescue fund
  • $339m to break the East West contract
  • $10bn for new trains and trams 
  • $11bn for Melbourne Metro Rail Link ($1.5bn in 2015-16)

The government contends that with a growing population and economy there is a need to right-size the public sector. This will see a 7% increase in public sector wages from a mix of salary increases (3%), with the rest being increases in headcount. 

Traps/items of interest?

  • detail and the impact from the sale (long term lease) of the Port of Melbourne were not specified in the budget
  • rail crossings not costed pending port sale
  • Gonski is not funded after 2017 school year ($805m next 2 years)
  • $40m for Westgate Distributor even though it is unlikely after Transurban proposal

The Victorian economy

Gross state product (GSP) is forecast to grow modestly from 2.25% to 2.75%.

Causes are:

  • steady population of 1.8m
  • a slow decrease in the unemployment rate (6.5% down to 5.75%)
  • wages growth (2.75% up to 3.5%)

Employment

Victoria’s unemployment rate continues to rise with spare capacity at a 20 year high.

The proportion of workforce aged Victorians not in the labour market has accelerated over the past decade and is not expected to slow down.

This includes more:

  • retirees
  • stay-at-home parents
  • full time students

The average annual hours worked has fallen sharply in the last 4 years from 1042 to 985 hours.

Competitive advantage

The sectors which the government sees as our competitive advantage and best potential for growth are:

  • medical technology and pharmaceuticals
  • new energy technology
  • food and fibre
  • transport, defence and construction technology
  • international education
  • professional services