On the afternoon of May 7th, Victorian Treasurer Tim Pallas presented the State Budget for 2024-25, marking his 10th budget announcement.
The budget forecasts a heightened deficit of $2.2 billion for the upcoming financial year, with the state’s net debt predicted to reach nearly $188 billion by mid-2028. To manage spending, the budget prioritizes delaying major infrastructure projects and eliminating certain government programs.
Despite the government’s efforts to curb spending, state tax revenue is anticipated to continue its upward trend, surging by over $8 billion in the next five years, constituting a 22% increase. Payroll tax and property-related taxes such as stamp duty and land tax will remain significant revenue sources, with projections showing a 21% and 25% increase, respectively, over the forecast period. Taxation revenue is expected to contribute over 40% to the government’s total revenue.
While there’s a current focus on alleviating the cost of living, this year’s budget lacks relief for businesses. Middle-market enterprises are facing challenges due to inflation, higher interest rates, and labor shortages. Some form of tax relief would have been beneficial to encourage investment and job creation in Victoria.
Property developers, especially, are grappling with challenging economic conditions. The increasing tax burden over the past decade has hindered both developers and the government’s aim to enhance housing affordability for Victorians.
Addressing the issue, the government must confront the feasibility challenges faced by developers, including stamp duty, land tax, Windfall Gains Tax, and other government charges. To stimulate investment in the residential housing sector, reintroducing concessions like the off-the-plan duty concession for investment properties, offering land tax discounts for landlords who provide consistent rental properties, and eliminating foreign duty and land tax surcharges could be effective measures.
Anticipation surrounds the release of the state taxes amendment bill, expected to include changes to the Vacant Residential Land Tax (VRLT) holiday home exemption for companies and trusts, along with other technical amendments.
Ben Thompson, CEO and Co-Founder of Employment Hero: “While it’s understandable that the state of Victoria is aiming to balance its financial position, the double burden of swollen taxes and dwindling consumer spending is weighing heavily on SMEs. SMEs are feeling the pinch, with our recent SME Index figures showing wages in Victoria have risen by 7.9% in the past year, putting additional strain on the cost of doing business. While the lifted payroll tax-free threshold will be welcomed by many smaller businesses, without further appropriate support from the government, there could be a mass exodus of SMEs from the state.
The current state of affairs is already showing its impact. The growth in employee numbers in Victoria lags behind the national average – again from our Index data – up only 5.2% compared to 5.9%. The total hours worked also trail the national average, suggesting that strained consumer budgets could reduce the need for hiring altogether. The combination of having still the highest taxes of any state, and reduced consumer spending could further discourage businesses from expanding their workforce.
Victoria’s reputation as a challenging place to do business, combined with the increased fiscal pressure, is not just a threat to SMEs but a potential disaster in the making if they can no longer stay afloat. This could result in job losses and a severe reduction in the state’s economic diversity and vibrancy. It’s important to remember that businesses need to thrive for the state’s financial position to improve. A more balanced approach to tax increases would not only support SMEs but also contribute to the broader financial health of Victoria. The current situation is not sustainable. Businesses need more than short-term relief; they need a long-term plan for growth.”
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