In what it describes as "a bitter blow to business" the Australian Industry Group as slammed the Andrews Government's Victorian State Budget. Other commentators in media and politics have predicted job losses and business closures as a result - with a disincentive for business investment in Victoria compared to other states.

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AiG TimPiperAiG's Tim PiperThe Victorian State Budget has delivered stinging costs on Victorian businesses which will impact thousands in the State, the national association of employers, Ai Group, has stated.

Over the past week, Victorian businesses have been met with major increases in payroll taxes, WorkSafe premiums and land tax.

Tim Piper, the Victorian Head of Ai Group, said there had been a 41 per cent increase in payroll tax for big businesses over the past two years, a 42 per cent increase in WorkSafe premiums announced last week and significant land tax increases across a broad range of stakeholders. Vic DanAndrews.pngVic Premier Dan Andrews

Mr Piper said the Budget was a disincentive to invest in Victoria, a result that would affect all businesses and consumers. "The Government has made a considered decision to saddle businesses with significant extra costs that can only make the cost of doing business in the State much higher," Piper says, adding: "There is a risk that business decisions will be based on government-imposed taxes rather than on investment opportunity. It may not be helpful when companies compare Victoria with other states or countries for their investments."

On a positive note, Piper said the gradual removal of stamp duty on commercial insurance was a step in the right direction. Ai Group also supports the Government’s decision to transition away from stamp duty on commercial properties and encouraged it to do the same for residential dwellings, to encourage investment and labour mobility. 

Is Covid to blame?

An ABC report points the finger at Victoria's massive Covid-induced debt - remembering that no other city in the world was locked down for as long as Melbourne: "Big businesses, holiday-home owners and landlords will be asked to foot the bill for the Victorian government's COVID-19 debt, as part of a 10-year fiscal repair plan unveiled in the state budget," said the ABC.

On Tuesday of this week, Victorian Treasurer Tim Pallas unveiled a "COVID Debt Levy", a two-part tax which the government expects will raise $8.6 billion over the next four years and will remain in place until 2033. Businesses with a national payroll of more than $10 million will pay additional payroll tax of 0.5 per cent, or 1 per cent if their national payroll exceeds $100 million.

Additionally, charges and threshold reductions will rake in more land tax - once again affecting businesses since family homes are exempted. Private schools have also been targetted, making them pay more payroll tax.

"Mean and nasty"

The measures in this Victorian budget are designed for a 10-year recovery of Covid debts, but some disagree and blame years of financial incompetence under Dan Andrews' watch.  Victorian opposition Leader John Pesutto slammed the Andrews government for raising taxes, saying Victorians were paying the price for Labor's "incompetence". Pesutto adds: "This is a budget that is mean. It is nasty; it visits pain on every Victorian."

While stamp duty relief has been welcomed, the Real Estate Industry of Victoria noted: "... increased land taxes are a 'horror move" and warned that businesses could head interstate. Vic DebtProjections.png

So Quo Vadis Victoria? Is it ten years of further 'financial mismanagement' and pain for businesses small and large, or a balancing of the budget that will benefit the next generation? Time will tell but a look at Victoria's projected indebteness tens to indicate more pain, especially for businesses and property owners.

The graph, the Vic government's own, shows debt ballooning to $171.4 billion by 2006-27. Recent history demonstrates that, when states have high debt, powers with more money can increase their influence by offering more debt to pay the old debt, or to finance infrastucture that the state government can not afford - and calling in the debt when payments are late (witness Sri Lanka).

Victoria's fiscal policies appear to be at odds with other states, and this budget tends to underscore that presumption. Also at odds with other Australian states is the Premier's policies regarding Chinese investment. Andrews was the only Premier to want to sign up to the 'Belt & Road' initiative (overuled by the Morrison Federal Government), the only state Premier to visit China post-pandemic and the only one to visit no less than eight times during his term. Not that there is anything wrong with foreign investment - it all depends on what 'strings are attached.'

And a heavily indebted state is more vulnerable to 'strings' than financially healthier ones.

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