State budget brings in COVID levy; major road, rail projects affected by federal review

Treasurer Tim Pallas said the COVID debt was a "dead weight on the economy" as it had served its purpose in keeping Victorians safe.

"Our plan is temporary, targeted and above all, responsible," Mr Pallas said in his budget speech.

He said large businesses, with national payrolls of more than $10 million a year - about five per cent of Victorian businesses, would pay additional payroll tax.

"It's a pretty small number, in total," Mr Pallas said.

"Business profits are up 24 per cent over the past three years, compared with the previous three have increased 84 per cent in the past 10 years."

He said the government borrowed $31.5 billion to pay for the "tools" needed to confront the emergency, such as hospital equipment, testing centres and business support.

Mr Pallas said the government felt big business had the capacity to make a "modest contribution" to help pay the COVID debt.

"We'll also lower the land tax threshold and add a modest fixed charge, with larger landholdings also paying an extra 0.1 per cent of land value," Mr Pallas told state parliament.

The land tax-free threshold will drop for unimproved land valued at $300,000 down to $50,000 from January next year: farmers are exempt from paying land tax on their own properties.

The measures were part of a COVID Debt Repayment Plan, with the levy expected to raise $8.6 billion in COVID Debt offsets over four years,

The Victoria Future Fund would also be used to help manage the debt, over the next decade and savings of $2.1b would be made across government.

"This has been the most difficult budget I've had to frame and this is my ninth budget now," Mr Pallas said.

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Mr Pallas said the government also intended to restore the public service to pre-pandemic levels, while not affecting frontline workers.

That would mean reducing public service levels by 3000 to 4000 roles in 2023-24.

Mr Pallas told parliament that savings of $2.1b were earmarked for the next four years, by reducing corporate and back office functions and spending less on consultants and labour hire.

"There will be no cuts to front-line services," he said.

"The pace of government has been absolutely frantic over the last few years, a lot of public servants have done an exceptional job, but the speed of government needs to get back to normal."

He said the Victorian economy was strong and growing, "bigger now than it was before the pandemic.

"It is forecast to grow further, by a healthy 2.75 per cent this financial year and an average of 2.4pc a year over the forward estimates."

The government was also "transitioning away" from stamp duty, in favor of an annual tax for commercial and industrial properties.

The payroll tax-free threshold would be lifted from $700,000 to $900,000 from July 1, 2024, with a further increase to $1m from July 1, 2025.

"This will save money for more than 26,000 small businesses, including 6000 businesses that will stop paying payroll tax altogether - saving small business with a $1m payroll $14, 550 a year," he said.

The state is currently running a $9.2b deficit, this financial year, which is expected to drop to $3.3bin 2026-7.

But Mr Pallas said it was "remarkable" how resilient the Victorian economy had been.

He said the government had also "delivered in spades" on employment.

The economy was strong and growing, now bigger than before the pandemic.

"It is forecast to grow further, by a healthy 2.75 per cent this financial year, and an average of 2.4pc a year over the forward estimates," Mr Pallas said.

The state was also committed to transitioning away from stamp duty, in favor of an annual tax for commercial and industrial land.

When it comes to road maintenance, the budget commits at least $6.6 billion to road asset maintenance, which includes extra $2.8m, over the next decade.

The budget commits $770m to road asset management, claiming that is more than 35 per cent higher than the annual average of the previous decade, from 2010 to 2020 ($567m).

"The scale and quality of this investment is yielding returns in the regions again in 2022-23, with expected performance meeting or exceeding performance measure targets for road quality measures on roughness, cracking and rutting," the budget papers said.

The budget papers also state the road area resurfaced or rehabilitated in regional Victoria had fallen well short of the 2022-23 target of 12,120 million square metres.

The expected outcome for last financial year was 8,570 m square metres.

That was down to "increased costs, arising from market price escalation and increased pavement repair work to prepare for resealing and resurfacing, due to heavy rainfall," the budget papers said.

The 2023-4 target had not been finalised at the time of the budget papers preparation.

Due to the commonwealth's Infrastructure Investment Review program, no total investment has been put forward for such key freight route upgrades, such as the Rutherglen alternative truck route and the Ararat and Beaufort bypass.

The Western Highway duplication, from Ballarat to Stawell, was also subject to commonwealth review - no money has been set aside for works in the budget.

The commonwealth announced the review in April, saying it would take 90 days.

"The Commonwealth Government has not provided a definitive list of projects for the review," budget papers state.

"Several projects that may be subject to this review have had their Total Estimated Investment and completion dates updated to "tbc" (to be confirmed) to reflect uncertainty associated with the review."

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Flooding has exacerbated years of road neglect, say producers

The commonwealth review also included the Murray Basin Rail Project, on which $641,786 this year, down to a $151,687 spend next financial year.

Similarly, while $38.6 million was set aside for the Port Rail shuttle, up until June 30, this year, only $560,000 is estimated to be spent next financial year.

The commonwealth is putting in $38m to the project.

While $32.6m was spent on the Strong bridges, stronger economy program this financial year that drops to $3.6m next financial year.

The promised $14.6m of federal funding for the program was now being assessed under the commonwealth review.

The review was also having an impact on Regional Rail Revival projects.

The government extended the Mode Shift Incentive Scheme, which aims to encourage the use of rail for container freight for another 12 months.

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Mode shift incentive scheme will eventually go, says government

But the government said it would be the last year it would be offered.

There was no increase in funding from last year, with the government saying the MSIS would end with the opening of the Port Rail Shuttle.

Another $3.5m was allocated to the scheme, which covers four regional freight operators.

In other budget measures, flood recovery efforts will receive a boost, with $347.5 million allocated into affected areas for work during 2023-24.

The Rochester Police Station was significantly damaged during the floods and $1.3 million has been allocated to replacing the station, and $23 million will go to rebuilding the Rochester and Heathcote VICSES Emergency Hubs.

Emergency Services Minister Jaclyn Symes said recovery was different for all communities.

"We promised to support communities for the long haul and this budget continues to back the important work of locals," she said.

Wine and beverage producers have also received funding in this year's budget, with the continuation of the Distillery Door Program which will receive $10 million, a match of last financial year's allocation, while the Wine to the World program will receive $5 million.

The agri-food industry will also receive a share of $2 billion among five other industries in the continuation of the Breakthrough Victoria Investment Fund.