State Budget Briefing

& AnalysisGrant HehirSecretary, Department of Treasury and Finance

Vince FitzGeraldChairman, the Allen Consulting Group

2010-11 Victorian Budget IPAA presentation

Grant HehirSecretary, Department of Treasury & Finance

Victorian Budget 2010-11

• Victorian economy• 2010-11 Budget financial results• 2010-11 Budget initiatives

Victorian economy

Most severe global recession since 1930s

75

80

85

90

95

100

105

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

Months after peak

Early 1970s Early 1990s GFC 2008

Index, peak = 100

Source: OECD

Industrial production in the G7 during recessions

GFC impact more severe overseas

0

5

10

15

20

25

Spain India USA China Germany UK Australia

per cent

Sources: Sources: ABS; US BLS; Eurostat, ONS, Economist

Unemployment rate

Annual employment growth

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2004 2005 2006 2007 2008 2009 2010

Australia VictoriaSource: ABS

per cent

Victoria created 99 400 jobs in last 12 months

0

20

40

60

80

100

120

NSW Vic Qld WA SA

Total Full-time

'000s

Source: Australian Bureau of Statistics

Victorian and Euro Zone business confidence

-4

-3

-2

-1

0

1

2

3

4

Apr-06 Apr-07 Apr-08 Apr-09 Apr-10

-40

-30

-20

-10

0

10

20

30

40

Euro Zone (LHS) Victoria (RHS)

Sources: National Australia Bank; European Commission

optimistic

pessimistic

Points of std dev Net balance

Victorian dwelling approvals increasing

0

1

2

3

4

5

6

1990 1993 1996 1999 2002 2005 2008

Seasonally Adjusted Trend

Source: Australian Bureau of Statistics

000’s

Annual population growth

0.0

0.5

1.0

1.5

2.0

2.5

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Australia Victoria

per cent

Source: ABS

Victorian economic projections

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Actual Forecast Forecast Forecast Forecast Forecast

Real GSP 0.8 2.25 3.25 3.00 3.00 3.00

(1.50) (2.50)

Employment 0.2 2.25 2.00 1.75 1.75 1.75

(0.25) (1.25)

Unemployment rate 5.1 5.50 5.50 5.25 5.25 5.25

(6.50) (6.75) (6.75) (6.75)

Wage price index 4.0 3.00 3.25 3.50 3.50 3.50

Consumer price index 2.8 1.75 2.25 2.50 2.50 2.50

(2.00)

Population 2.2 2.10 1.90 1.80 1.70 1.70

(1.90) (1.80) (1.70) (1.60)

2010-11 Budget projections(projections in parentheses are from 2009-10 Budget Update where different)

Risks

Sustained pressure on AUD

0.6

0.7

0.8

0.9

1.0

Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

USD per AUD Concensus Forecast

Post-float average

Consensus forecasts

Source: Reserve Bank of Australia

Annual inflation rates

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2004 2005 2006 2007 2008 2009 2010

Australia MelbourneSource: ABS

per cent

Economic reform strategy

• In light of these risks there is an economic reform agenda in place:– prudent financial management

– reducing business costs

– improving competitiveness and productivity• education and skills• health• market design

2010-11 Budget financial results

2010-11 financial objectives and strategies

Source: Department of Treasury and Finance

Objective Short term target Long term target

Net result from transactions (operating surplus)

At least $100 million in each year. Maintain a substantial net result from transactions (operating surplus) that allows for the delivery of the Government’s infrastructure objectives.

Net financial liabilities Maintain a AAA credit rating. Maintain government net financial liabilities at prudent levels.

Infrastructure Implement strategic infrastructure projects.

Deliver world class infrastructure to maximise economic, social and environmental benefits.

Taxation Implement reforms. Provide a fair and efficient tax system that is competitive with other states.

Service delivery Implement the 2006 election commitments.

Provide improved service delivery to all Victorians.

Maintaining a substantial operating surplus

394.9

871.9

650.4

1493.21387.6

0

500

1000

1500

2000

2500

2009-10 2010-11 2011-12 2012-13 2013-14

Net result from transactions$ million

Source: Department of Treasury and Finance

Short term $100 m target

Maintaining a substantial operating surplus

12

13

14

2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

Revenue Expenses

Source: Department of Treasury and Finance

per cent Revenue and expense growth relative to nominal GSP

Maintaining a substantial operating surplus - Discretionary revenue not fully recovered

20

22

24

26

28

2008-09 2009-10 2010-11 2011-12

$ billions

2010/11 Budget Gap

Discretionary Revenue (GST + State Taxation)

Source: Department of Treasury and Finance

Maintaining prudent financial liabilities - Net debt reduced since 2009

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014

2009-10 Budget 2010-11 Budget

per cent

Source: Department of Treasury and Finance

General government net debt/gross state product

Maintaining prudent financial liabilities

2

4

6

8

10

12

14

1999 2001 2003 2005 2007 2009 2011 2013

Net financial liabilities to GSP Net debt plus superannuation liability to GSP

Source: Department of Treasury and Finance

per centGeneral government sector net financial liabilities

Deliver world class infrastructure

0

3

6

9

12

15

1999-00 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14

NFPS Sector Cwlth stimulus passed on

$ billion

Source: Department of Treasury and Finance

Infrastructure spending

Deliver world class infrastructure

0

1

2

3

4

5

6

7

2010-11 2011-12 2012-13 2013-14

Net cash flow from operating activities Net debt

$ billion

Source: Department of Treasury and Finance

Sources of funding for net investment

Improving business competitiveness

• Payroll tax cut– Saving to business of $193 million– Seven cuts in 10 years

• Workcover premiums cut– Saving to business of $240 million– Six cuts in last 7 years

• Land tax cuts– Exemption of up to two years for construction of residential aged

care facilities and retirement villages

• Red tape reductions– Government has doubled target and now plans to cut regulatory

burden by $500 million per annum by 2012

Payroll tax rate cut to 4.90 per cent

4.50

4.75

5.00

5.25

5.50

5.75

6.00

1999-00 2001-02 2003-04 2005-06 2007-08 2009-10

per cent Payroll tax rate

Source: Department of Treasury and Finance

WorkCover premiums cut by 3.5 per cent

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2000-01 2002-03 2004-05 2006-07 2008-09 2010-11

0

5

10

15

20

25

30

35

Average premium (LHS) Number of claims (RHS)

per cent

Source: WorkCover Authorities

‘000

Tax competitiveness

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 2010-11

Source: Australian Bureau of Statistics, Department of Treasury and Finance and various state publications

Victoria

New South Wales

Queensland

per cent Taxation as a share of nominal GSP

2010-11 Budget initiatives - provide improved service delivery to all Victorians

2010-11 Budget output initiatives

2010-11Budget

2011-12Estimate

2012-13Estimate

2013-14Estimate

Education and Early Childhood Development 60.2 45.8 26.0 25.6Health 283.0 196.6 205.4 170.6Human Services 44.1 39.7 30.1 30.8Innovation, Industry and Regional Development 67.2 52.3 40.6 25.8Justice 114.3 166.8 197.6 246.6Planning and Community Development 48.3 30.7 22.9 18.2Premier and Cabinet 7.7 6.2 3.7 3.7Primary Industries 3.4 3.6 4.1 5.0Sustainability and Environment 10.9 12.8 9.8 9.5Transport 26.8 6.2 10.7 14.5Treasury and Finance 96.5 51.4 4.7 ..Parliament 1.5 1.4 1.4 1.4Government-wide 157.8 162.7 166.5 172.3Subtotal 921.7 776.1 723.4 724.1Less funding from demand and other efficiencies -503.2 -395.8 -281.5 -304.2Net impact of 2010-11 Budget new output initiatives 418.5 380.3 441.9 419.8

Add: net impact of 2009-10 Budget Update output initiatives (c) 214.6 218.7 172.4 naNet budget impact of output initiatives since 2009-10 Budget 633.1 599.0 614.3 419.8

($ million)

Net impact of 2010-11 Budget new output initiatives

Source: Department of Treasury and Finance

2010-11 Budget asset initiatives

2010-11 TEI (a)Budget

Education and Early Childhood Development 82.5 236.4Health 142.5 1 285.0Human Services 3.1 11.1Innovation, Industry and Regional Development 43.1 80.1Justice 22.6 153.2Planning and Community Development 80.2 414.5Premier and Cabinet 13.7 13.7Primary Industries 2.8 9.6Sustainability and Environment 10.8 21.9Transport 221.5 1 521.0Treasury and Finance .. ..Parliament .. ..Government wide 50.9 65.9Total 2010-11 Budget asset funding 673.7 3 812.4Add: 2009-10 Budget Update asset funding 863.7 6 230.4Asset funding since the 2009-10 Budget 1 537.4 10 042.8

2010-11 Budget new asset funding

Source: Department of Treasury and Finance

Investing in education

• Victorian Schools Plan – First tranche exceeded

– 553 school upgrades/refurbishments funded this term

– Exceeded promise to fund 500 this term

• Blueprint for education and early childhood development

– 42 actions towards system improvement, partnerships with parents and communities and workforce reform

• $287 million to support non-government schools

– Support for disadvantaged students and students with disabilities

• Building the Education Revolution

– Delivering $2.6 billion of capital works in partnership with Commonwealth Government

Investing in lifelong learning

• Early childhood development– 3,590 extra kindergarten places and 126 kindergarten teachers

– Partnership with the Commonwealth Government to deliver National Quality Agenda for Early Childhood Education and Care

– Establishing the Victorian Deaf Education Institute

– Major upgrades to Glenroy Specialist School, Northern School for Autism and Eastern Autistic School

• Support for TAFE sector– New infrastructure including new Teaching & Learning Centre for NMIT

– Apprenticeship completion bonus and accommodation allowance

Putting patients first• $4 billion injection for Victoria’s health system in partnership with the

Commonwealth, including;• 1,000 new health workers• $2.3 billion for Victorian health care facilities since 2009-10 Budget

– $618 million for regional hospitals in Bendigo, Coleraine, Leongatha, Ballarat, Geelong, Wonthaggi and Healesville

– $408 million for Box Hill Hospital– $91 million to expand Sunshine Hospital

• $760 million for immediate service funding– 22,000 additional inpatient services in 2010-11– 9,000 elective surgery treatments over two years– 32,000 additional outpatient appointments in 2010-11

• Expanding support for people experiencing mental illness– New Mental Health Bill – Boosting early intervention programs for young people including youth suicide

prevention and youth and mental health outreach teams

Putting patients first

• $935 million from COAG Agreement on health and hospitals reform– 150,000 more emergency departmental patients each year being treated

– 34,000 more patients receiving elective surgery faster

– additional 332 sub-acute beds enabling treatment of 5,000 patients annually

• Making Victoria a leader in Cancer research and treatment– Parkville Comprehensive Cancer Centre

– Olivia Newton-John Cancer and Wellness Centre - Stage 2a

– Ballarat Regional Integrated Cancer Centre

A Fairer Victoria – strengthening the safety net

• Helping households with rising living costs– Increasing the water concession for 669,000 households– Continuation of the Waterwise program for water audits & retrofitting

• Looking after vulnerable children– Addressing out of home care service growth and enhancing quality

services for traumatised children ($35 million)– Family services to better assist children at risk ($24 million)

• Ongoing support for people with a disability– Increase in funding for Community Service Organisations– Better resourcing 24-hour shared support accommodation

($35 million plus $11 million in asset funding)– Supporting people with autism and their families ($7.5 million)

Retargeting the First Home Bonus

• 69% of Victorians own their home• First Home Bonus created 19 000 jobs last year (HIA)• FHB takes pressure off the rental market

• First Home Bonus refocused to newly constructed homes• Boost for housing and employment in CADs ($10 million)• Support for community infrastructure ($22 million)• NRAS - $237 million for up to 7 500 affordable dwellings

Delivering the Victorian Transport Plan

• 50 new low floor trams and supporting infrastructure to move

an extra 10,000 passengers at a time

• 20 premium station upgrades including 100 additional station

staff

• Four new train stations in growth corridors

– Cardinia Road, Williams Landing, Lynbrook and Caroline

Springs

• Transport connections program to assist regional and rural

communities

Working with the community to tackle the causes of crime

• Delivering the Respect agenda– Funding A Right to Respect tackling sexual and domestic violence

against women ($14 million)– Fifty five additional youth workers to support young people ($22

million) – Launched the Knives Scar Lives campaign

• Swifter access to justice – Managing court demand and legal services master plan ($64

million) – Boost to Victoria Legal Aid ($50 million)

Promoting community safety

• Delivering 1,966 frontline police back on the streets– Biggest one-off boost in Victoria’s recent history

• Building an effective corrections system – Increased capacity for women’s prison accommodation ($81

million)– Additional men’s prison accommodation ($46 million)– Continuation of Better Pathways strategy to reduce women’s

imprisonment and re-offending

Bushfire reconstruction and preparedness• 2009-10 Budget: Immediate Response ($986 million)

– 33 Community Recovery Centres– Over 200 case managers appointed– Clearing over 3,000 damaged properties

• Interim Report response announced in 2009-10 ($61 million)– Improvements to bushfire information services

• New funding in 2010-11 Budget ($254 million)– Preparedness and community education ($92 million)– Emergency response initiatives ($79 million)– Extra support for Victorian Bushfire Reconstruction and Recovery

Authority

Our environment – continuing Victoria’s Leadership

• Leadership in tackling climate change– Support for ETS– Climate Change White Paper to be delivered this year– Climate Change Bill– Land & Biodiversity package released in December 2009

• Jobs for the Future Economy statement ($175 million)– Improve the energy and water efficiency of the State’s hospitals,

schools and government buildings– New research and industry partnerships in sustainable industries

• Free entry to national parks– Estimated to boost visitation by 25-50% a year

2010-11 Victorian Budget IPAA presentation

Grant HehirSecretary, Department of Treasury & Finance

State Budget Briefing

& AnalysisGrant HehirSecretary, Department of Treasury and Finance

Vince FitzGeraldChairman, the Allen Consulting Group