We’ll have to wait to see whether swagger justified

We’ll have to wait to see whether swagger justified

20th May 2021 Off By adpublisher

Just over a week after the federal budget, the Victorian government has offered its own take on how to revive the battered economy. Considering the divergent political leanings of the two governments, their approach is surprisingly similar.

Both budgets delivered a big-spending headline driven by royal commissions: the federal government is shovelling billions into aged care as Victoria ramps up spending on mental health. Both budgets accept that government must lead the way in stimulating growth, and that racking up substantial debt in that endeavour makes sense. But there is one clear divergence.

While the Morrison government put debt and deficit on the backburner, and left the return to surplus in the faraway future, the Andrews government has taken a different tack. It has shown a readiness not only to spend big, but a readiness to tax big. While the tax hit to property developers and home buyers in the $2 million and above market had been flagged, state Treasurer Tim Pallas waited until budget day to reveal his new mental health “levy”. It will result in businesses with payrolls of over $10 million contributing an extra $843 million to the state’s coffers each year to pay for extra services.

This is classic Victorian Labor. It’s bold and unashamedly progressive – hit the “big end of town” and wealthier home buyers. The royal commission into the mental health system did recommend a levy to pay to fix a broken system, but it never mentioned that it should be confined to larger businesses. Labor’s approach allows Mr Pallas to have a lazy political swipe at businesses that “continued to profit through the pandemic, pocketing taxpayer subsidies along the way”. In most cases, that’s populist nonsense.

Businesses will scream blue murder and they have a point. The two taxes that will fund much of the new spending – stamp duty and payroll tax – were labelled by the Henry tax review as being highly inefficient and in need of being abolished. The payroll tax hike will undoubtedly slow employment growth, although the rate even after the increase will be similar to that in NSW.

State Treasurer Tim Pallas explains his budget on Thursday.Credit:Joe Armao

The dominance of Labor in Victoria means attacks on its big spending and taxing ways will be brushed aside – after all, big spending is hardly ideological these days, and it is in Victorian Labor’s bones to improve public services, which also can have an economic pay-off. The party has never been ashamed of government spending.

Mr Pallas should be given credit for offering a path back to surplus by 2023. He boasted that if the economy was roaring back to life in Australia, it is this state that provides the “tiger in the tank”, with economic growth to be 6.5 per cent next year, outstripping the rest of the country.

He is less optimistic about employment. In Victoria’s view, unemployment over the next four years will bottom out at 5.25 per cent, a figure higher than federal Treasurer Josh Frydenberg is targeting.