1. Victorian budget: observations from outside the tent Danielle Wood, Grattan Institute IPAA State Budget Briefing Breakfast 2 May 2018

2. Budget observations A pre-election budget…
Healthy headline figures – net operating surplus, net debt not above 6% GSP, AAA credit rating
More on social/economic services – skills, education, health,
More (lots more) on infrastructure
What has contributed to spending and revenue changes?
Health spending (and many other types of spending) grown faster than GSP
Revenue boom: property taxes and GST have grown as a share of the economy
Has government done enough for long-term budget sustainability?
Small surplus and plenty of downside property market risks
No substantial savings measures
No attempt to reform taxes while times are good
Surpluses – 1.4, 2, 2.7, 2.9

3. Another good news budget….
Victorian expenditures and revenues
per cent of nominal GSP
Forecast
Operating balance

4. A range of pre-election goodies….
Skills
$304 million new TAFE and training places
$172 million for 30 priority TAFE courses and pre-apprentices free of charge
$100m capital works for TAFEs
Schools
$1.3 billion for 28 new schools and to upgrade 130 others
$288 million to support students with a disability
Health
$1.2 billion to build and expand hospitals
$2.1 billion to address demand pressures (including elective surgery waiting times)
$705 million mental health and addiction services
Tax
Reducing payroll tax regional business to 2.425%
Trial third pathway – studying VCE certificate – finish with apprentiship from high school. Start in workforce as trained apprentice.

5. Infrastructure spending will remain high by historical standards
Victorian Government infrastructure investment
$ billion
Source: Victorian Budget , Budget Paper No. 2

6. Budget observations A pre-election budget…
Healthy headline figures – net operating surplus, net debt not above 6% GSP, AAA credit rating
More on social/economic services – skills, education, health,
More (lots more) on infrastructure
What has contributed to spending and revenue changes?
Health spending (and many other types of spending) grown faster than GSP
Revenue boom: property taxes and GST have grown as a share of the economy
Has government done enough for long-term budget sustainability?
Small surplus and plenty of downside property market risks
No substantial savings measures
No attempt to reform taxes while times are good
Surpluses – 1.4, 2, 2.7, 2.9

7. Why has size of government continued to grow?
Victorian expenditures and revenues
per cent of nominal GSP
Forecast
Operating balance

8. Change in Victorian government expenditure
Real change in forward expenditure, to , $2017 billions
Real change
Change if growing at same rate as GSP
Many categories of spending where spending outstripped economic growth – public services, safety and welfare all stand out
But health has been a huge contributor both because its grown fast and its such a big part of the total spend (around 29% of total spending this year)

9. As all OECD countries got richer, they spent more on health (except Iceland)
Health spending and GDP, 2000 to 2012
$51k,
16.4%
USA
Germany
France
Switzerland
Iceland
Norway
Australia
Hungary
Health spending as proportion of GDP, %
Ireland
Luxembourg
$91k,
6.6%
Chile
Korea
No GDP growth
Turkey
Health growing faster than GDP
Health stable relative to GDP
GDP / capita, PPP
Source: OECD

10. Policy choices, not population ageing, drives health spending increases
Real increase in health expenditure , $2012 billion
More, improved, and new services per person
GDP growth
Health inflation >CPI
Population ageing
Population growth
Andrews: People want best care, want it quickly, want it close to home. That’s not going away.
Source: Grattan Institute, Budget Pressures 2014

11. Property taxes and GST have seen revenues grow as a share of the economy
Real change in forward revenue, to , $2017 billions
Real change
Change if growing at same rate as GSP
Taxation
Other own-source
C’wth transfers
Why has government revenue increases as a share over the economy during the most relevant = period.
Extraordinary growth in property taxes – collected 6x more land tax and 3 times more stamp duties than if those items had grown along with GDP.
Also did very well out of GST collection over period partly – Victoria's relativity increases with population growth and lack of Commonwealth infrastructure money working its way through the formula.

12. Budget observations A pre-election budget…
Healthy headline figures – net operating surplus, net debt not above 6% GSP, AAA credit rating
More on social/economic services – skills, education, health,
More (lots more) on infrastructure
What has contributed to spending and revenue changes?
Health spending (and many other types of spending) grown faster than GSP
Revenue boom: property taxes and GST have grown as a share of the economy
Has government done enough for long-term budget sustainability?
Small surplus and plenty of downside property market risks
No substantial savings measures
No attempt to reform taxes while times are good
Big downside risks to property tax collections