Tim Pallas says his state has been ripped off by the Commonwealth, evidenced by the federal government’s track record of spending over the past 70 years.
The unfair distribution of funds since 1950 has equated to a loss of $17,000 for every person in the Victorian population, the treasurer said, and the introduction of GST has done nothing to rebalance the score.
In a media briefing just before he handed the 2024-25 budget on Tuesday, Pallas said Victoria had never received its fair share of the GST pool, and called for change.
“Victoria has subsidised the Federation to the tune of $30 billion under that funding instrument alone,” Pallas said of the scheme introduced by John Howard 24 years ago.
“All we’re asking for, essentially, is our fair share. We’re not asking to get over the odds.”
Budget paper no.2 warned there were potentially significant consequences for the state’s GST revenue (determined annually by the federal treasurer on the recommendations of the Commonwealth Grants Commission) if there were small changes in factors like demographics, infrastructure spending, or the property market and global commodity price developments.
A federal review of the 2025 methodology will also have a bearing on Victoria’s GST relativity for the next financial year.
“The outlook for the national GST pool is largely tied to nominal household consumption and new dwelling investment. Nominal consumption has been stead to date, supported by accumulated savings and a strong labour market,” the budget papers read.
“However, the outlook for national nominal household consumption is affected by uncertainty around the trajectory of inflation and monetary policy in the near term. Further, there is uncertainty in the evolution of post-pandemic spending patterns relating to the proportion of consumption subject to GST.”
“Victoria’s population share is affected by net international migration into Australia that has declined following the commonwealth migration strategy. Victoria’s recent population share growth has been driven by the strength of international migration and the fact Victoria receives a greater share of international migration than its population share.”
Pallas has also expressed his displeasure over what he described as the Commonwealth’s failure to adequately fund Victoria’s infrastructure.
Between 2014 and 2015 and 2022 and 2023, he said, the state had received $8.3 billion less than the state’s population share of infrastructure funding.
During this time, the treasurer said, the federal government had funded $9 billion worth of infrastructure into the state instead of $17.3 million.
“We think it’s only fair that the Commonwealth provide Victoria with its fair share of infrastructure funding, in part because Victoria has made such a reliable and sustainable contribution to the Federation,” Pallas said.
“Since 1950, Victoria has received about $117 million less than its population share of Commonwealth funding, which translates to about $17,000 to every man, woman and child in this state.”
Pallas also noted that the fortunes of other states were markedly different, with NSW receiving $2.7 billion more than its population share from the Commonwealth in the same eight-year period.
“We understand that we are, after all, the principal funder of the Federation,” Pallas said.
“That’s what a strong economy will do, and that’s what Victoria has been doing since day one of Federation.”
Victoria’s approach to financial management before the pandemic was one that relied on a fiscal framework that balanced consistent operating surpluses and maintaining debt at a sustainable level with services and infrastructure that could adapt to the state’s growing population.
According to budget paper no.2, the economic response in the aftermath of the COVID-19 pandemic has been to support households, businesses and service delivery, with a four-step plan first articulated in the 2020-21 budget to:
- create jobs, reduce unemployment and restore economic growth;
- return to an operating cash surplus;
- return to operating surpluses; and
- stabilising debt levels.
A fifth step was this year added to the plan: stabilisation of net debt, which is forecast to decline by the end of the forward estimates and eventually reduce net debt as a proportion of GSP.
“Economic indicators have shown that this strategy is working, with the economy performing well and the labour market strong. Economic activity is well above pre-pandemic levels, and the labour market is even stronger than before the pandemic,” budget paper 2 read.
“The 2024-25 budget builds on [the four-step strategy] by recalibrating the government’s service delivery, departmental expenditure and capital program to take account of the increasing cost of labour and materials, as well as supply constraints in the economy, including workforce availability and capacity.
“It also reflects choices of the government prior [to this] budget, such as a fully funded 2023 wages policy announced ahead of the 2023-24 budget.”
The government’s five long-term management priorities include sound financial management, improved services, building infrastructure, efficient use of public resources, and a resilient economy.
Pallas said that the Victorian economy was performing well and continued to grow, despite high inflation and elevated interest rates impacting the national and global economy.
In the past year alone, employment in the state rose by 83,000, achieving a record-high employment for working-age Victorians. Unemployment in the state is historically low at about 4%.
“This is a budget that looks towards a big and prosperous future, with Victoria set to hit 10 million residents by 2050 … We are proud of the generational infrastructure legacy we are creating,” Pallas said.
“Our Big Build — including the level crossing removal program, the suburban rail loop, West Gate Tunnel and North East Link — will transform the way Victorians travel.
“The Metro Tunnel will open next year: the biggest and most changing public transport project since the City Loop opened more than 40 years ago.”
The treasurer added that the government was pumping $550 million into skills and training investments, including free TAFE training and courses on offer, $11 million to support apprentices, trainees and their employers, and $16 million toward training more mental health practitioners.
“We’ve supported thousands of jobs through our Big Build, we will have trained 17,000 nurses by the end of forward estimates, and we have invested $32 million to incentivise doctors to become GPs.
“We have invested $370 million to bolster the early childhood workforce, and we’re setting up training centres to create our clean energy workforce,” he said.
In line with expectations published in last year’s budget, the government expects the net result from transactions for Victoria’s general government sector will return to an operating surplus in the 2025-26 financial year.
Victoria’s operating surplus is expected to reach $1.5 billion in 2025-26, and $1.6 billion in 2026-27, and $1.9 billion in 2027-28.
The net result from transactions in 2024-25 is forecast to be in deficit by $2.2 billion.
“We remain on track for step three [of the fiscal plan], and this budget forecasts an operating surplus in 2024-26, which is higher than previously predicted,” Pallas said.
The financial measures and targets the government uses to diagnose the health of its budget every year include the ratios of net debt to GSP, interest expense to revenue, superannuation liabilities, and operating cash surplus.
In 2024-25, most components of GSP will grow, including real household disposable income, more income tax cuts and easing interest rates.
“This is expected to underpin a solid rebound in consumer spending in 2024-25,” the budget papers read.
“Business investment intentions are elevated, and there is a substantial pipeline of both private and public construction work to be done.
“Dwelling investment is expected to increase, driven by increased demand for new housing.
“A positive outlook for the agricultural sector should support growth in Victorian goods exports, while the continued return of international tourism will underpin growth in services exports.”
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