Homebuyers, GST bonanza prop up Victorian Budget

VICTORIA is navigating towards a taxation sweet spot as low interest rates spur homebuyers and the state eyes a bigger slice of the national revenue pie. The ongoing property boom, heavily driven by investors, is fuelling strong growth in land transfer fees, which are expected to eclipse $5 billion next financial year, State Budget papers reveal.

And the state is also expecting to derive $5.4 billion in payroll tax revenue in 2015-16, nearly a third of its projected $19 billion tax take.

That payroll tax sum is projected to rise to $6.4 billion in 2018-19 — the outer range of the government’s Budget forecasts — as the state economy returns to normal growth levels in line with similar expectations for the nation.

However, the state’s 500,000-odd small businesses will be asked to play their part, with the $550,000 payroll tax threshold — the lowest in the country — to remain unchanged.

It’s also achieved despite last July’s 0.05 percentage point reduction in that tax rate to 4.85 per cent under the previous government.

The Budget papers also reveal that the 4 per cent growth rate in taxation over the forward estimates period is lower than the average of 5.3 per cent achieved in the past decade, with the economic downturn spawning more cautious consumers and businesses.

However the tax gains and a tighter approach to spending will deliver a $1.2 billion surplus in 2015-16, the Government believes.

The Budget is expected to stay in the black, with the surplus rising to $1.8 billion in 2018-19, likely to further safeguard the state’s coveted triple-A credit rating.

The Andrews Government is also set to reap a $12.8 billion bonanza in the coming financial year from the national goods and service tax pot as shoppers reboot spending and petrol prices rise.

Victoria is a key beneficiary of the proposed revenue redistribution away from mining-rich Western Australia, which could receive just 30c for every dollar of GST raised nationally.

Under the latest review facing the Commonwealth Grants Commission, the federal body charged with distributing the carve-up of GST receipts, Victoria’s share will rise by $927 million on 2014-15’s sum, or $154 for every Victorian.

Despite the boost, the state continues to subsidise its weaker performing counterparts, such as Tasmania and South Australia, with just 89c in every GST dollar coming back to Victoria under this proposal.

On the spending side of the ledger, the Budget is expecting to contain net debt to 4.4 per cent of gross state product in 2015-16, down from 5.8 per cent this financial year.

Treasury is forecasting gross state product of 2.5 per cent in 2015-16, up from 2.25 per cent this year and rising to 2.75 per cent a year later. The uptick is predicated on consumers regaining confidence on the back of rising home prices and the lower dollar supporting export-oriented industries.

State unemployment is forecast to average 6.25 per cent in 2015-16 before sliding down to 5.75 per cent by 2018-19.

The government is keen to promote initiatives to return young people to the workforce, including its Back to Work Scheme which aims to create 100,000 jobs over two years.

In the Budget papers, it notes that young Victorians are tending to stick to full-time education given their prospects of securing full-time work have diminished during the past four years.

“Our economy is fundamentally strong,” Treasurer Tim Pallas said. “Two thirds of our gross state product centres on the home — housing investment and household consumption — both are growing.”
 

Source: Herald Sun , Australia, dated 05/05/2015