Where are the billions coming from? In part, from property. This financial year Treasurer Tim Pallas will get $6.6 billion from property stamp duty, up from $5.4 billion in 2015-16. He will get $2.4 billion from land tax, up from $1.7 billion in 2015.
The good news is that Victorian property values are staying high. Sydney prices slid 1.7 per cent in the three months to March whereas Melbourne prices slipped just 0.5 per cent.
Going forward, Tuesday’s budget will forecast still high but lower income from stamp duty, a judgment that looks about right. Melbourne’s population growth is the strongest in Australia, which means Melbourne property prices are more likely than most to stay high.
Many more of the billions will come from asset sales. The Turnbull government will pay the Andrews government a touch over $2 billion for Victoria’s share of Snowy Hydro, and a private buyer will pay it an estimated $2 billion for the right to run the land titles registry.
Victoria will get $16.8 billion from the Commonwealth Grants Commission in goods and services tax collections, that’s about $900 million more than it expected. It’ll reflect both Victoria’s bigger than expected population, and its lower than expected share of Commonwealth infrastructure grants. The Grants Commission’s formula requires it to compensate for Commonwealth stinginess after enough years have passed, and the Abbott and Turnbull governments have been stingy long enough for the compensation to kick in.
And the Commonwealth is at last becoming more generous. The $5 billion promised for a Melbourne Airport rail link and the $1.42 billion promised for regional rail are making things easier.
The economy itself is helping. One in every ten jobs in Victoria has been created in the past 3½ years, since the election of the Andrews government. One in every seven dollars sloshing around in the economy wasn’t there before Andrews was elected and (coincidentally) Victoria’s population growth took off.
It’s impressive, but doesn’t quite explain how Tim Pallas can promise to spend $10 billion a year on infrastructure for the next four years and still bring in a surplus.
The answer lies in a quaint state budget accounting convention. When the money is spent, it isn’t spent as far as the budget is concerned. All that appears on the budget are the interest payments on the borrowings to spend the money, and later depreciation on the infrastructure that’s been built. You can literally borrow to spend as much as you want on infrastructure in a state budget and still report the surplus you would have had if hadn’t.
Once small, the interest component of the budget is climbing. That needn’t be a problem if the infrastructure is worthwhile, which most of it probably is. Privatisations have kept the debt relatively low. On Tuesday Pallas will say it's less than he inherited from the Coalition.
In The Age and Sydney Morning Herald