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Treasurer Tim Pallas has described this – his ninth budget – as the most difficult he has had to deliver.
Here are seven graphs that delve into the new levies that have been introduced to reduce Victoria’s debt mountain, the state’s finances, whether a return to surplus is on the cards and how the economic forecasts have shifted over the past year.
The impact of new debt levies on revenue
In 2023-24 the state government expects to bring in just over $89 billion in revenue, almost $5 billion more than it originally estimated in last year’s budget.
The increase is partly explained by the introduction of COVID debt levies that are aimed at paying down the state’s debt pile.
This graph gives a breakdown of some of the major sources of revenue, with the purple line representing last year’s budget and the orange line this year’s budget, so you can see what has changed:
There are a couple of unpaired lines on the graph, both of them debt levies. A new levy on landholdings is expected to bring in about $1.15 billion in the coming year.
There is also going to be extra payroll tax on businesses with national payrolls above $10 million, which is expected to rake in $836 million. The debt levy on these businesses is on top of a mental health and wellbeing levy that was introduced in 2021.
You can see the additional taxation revenue expected to be brought in by the debt levies over the next few years in this graph, which shows taxation revenue estimates from last year’s budget side-by-side with the estimates from this year’s budget with the amounts from the new levies highlighted in yellow:
But there are some areas where the government expects to bring in less income. The cooling property market and fewer properties changing hands means that the Andrews government has revised down its estimates for how much revenue it will receive from land transfers in 2023-24 by almost $1 billion.
However, all these sources of revenue pale in comparison to how much the state government receives from federal government grants, which are expected to account for about $42 billion next year.
Rising debt
The state’s debt pile continues to rise, and is projected to increase to $171.4 billion by June 30, 2027. Debt is such an important issue that it is worth three graphs, rather than just one, to help put it in perspective.
This first graph tracks the state’s net debt for the past 30 years, with the dotted lines showing the budget estimates of where debt is headed.
And just like a homeowner who has noticed their mortgage repayments have increased due to rising interest rates, the amount of interest the state government is paying on this debt is also increasing. In 2026-27, the interest bill is expected to be about $8 billion.
There are a few ways to put this figure in perspective, and one of them is to express interest expenses as a percentage of the state’s total revenue. This graph shows that on that measure, interest as a percentage of revenue is expected to reach a 30-year high of 8 per cent in 2026-27.
To help pay down this debt pile, this budget introduces some new levies targeting large companies and landholders that are expected to rake in about $2 billion in extra revenue this coming year.
Back to surplus
In 2023-24, the state government expects to bring in $89.2 billion in revenue, and to spend $93.3 billion, which equates to a deficit of $4 billion. But – as you can see in the graph below – this is less than some of the deficits recorded during the depths of the COVID-19 pandemic:
By 2025-26, the government expects to be back in surplus, estimating that it will bring in $1 billion more than it will be spending.
The new COVID debt levies are expected to help the state back to its first surplus since 2018-19, as without the funds they are expected to raise the state would remain in deficit in both 2025-26 and 2026-27.
How forecasts have changed since last year
It’s also worth taking a look at how some of the underlying economic forecasts that underpin the budget have changed over the past year.
When last year’s state budget was handed down on May 3, the consumer price index for metropolitan Melbourne was forecast to remain at about 2.5 per cent over the next few years. Last year’s estimates show up as a purple dotted line on the graph.
But even back then, there were signs of rising inflation. Less than one week before last year’s budget, the ABS announced that inflation in the March quarter of 2022 was at its highest in more than a decade. With inflationary pressures rising, the Reserve Bank announced its first interest rate rise in more than a decade and the first of many on the same afternoon the 2022-23 state budget was tabled.
This year’s state budget was put together against a backdrop of high inflation and rising interest rates, and it shows in the updated inflation estimates (the orange dotted line on the graph). It expects inflation of 4.25 per cent this year.
However, the inflationary shock is expected to be short-lived, with inflation falling back into the safe 2.5 per cent zone into the following years, which is in line with what federal Treasurer Jim Chalmers has forecasted in this year’s federal budget.
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