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Chapter 1: Overview

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Chapter 1: Overview CHAPTER 1: OVERVIEW • The Bracks Labor Government’s first budget delivers its output election commitments in full with $426 million in new output initiatives to improve services to all Victorians, within a responsible financial framework. • Consistent with the Government’s commitment to responsible financial management, a substantial operating surplus of $592 million is forecast for 2000-01. • Continued substantial operating surpluses will result in budget sector net financial liabilities falling from 10.9 per cent of GSP as at 30 June 1999 to 7.7 per cent as at June 2004, and state government net debt declining from $6.2 billion to $4.7 billion. • The Government will take advantage of the strong budget position in 1999-2000 to establish a $1 billion infrastructure reserve, Growing Victoria, to boost infrastructure spending by an additional 20 per cent over the next four years. • Business taxes will be reduced by a minimum of $200 million by July 2003, including $100 million from July 2001, subject to the maintenance of a substantial operating surplus of at least $100 million. This will keep Victoria’s taxes broadly in line with the national average and below New South Wales. Details of the business tax cuts will be determined following a review of Victoria’s tax system, to be completed by the end of 2000. • New infrastructure projects with a total estimated cost of $987 million will commence in 2000-01 to provide new and better schools, hospitals, transport and other community facilities. Total spending on the net purchase of fixed assets in 2000-01 will be $1 152 million. • The 2000-01 Budget sets new standards in financial reporting and transparency. In particular, the Auditor-General has certified that nothing has come to his attention that would cause him to believe that the estimated financial statements are not consistent with the Government’s key target of an operating surplus of at least $100 million in each year. Budget Statement 2000-01 Overview 1 ELECTION COMMITMENTS DELIVERED IN FULL The 2000-01 Budget completes the implementation in full of the Government’s election commitments by providing Victorians with $426 million in new output initiatives (net of savings initiatives and funding from within existing forward estimates) to improve services in key areas (see Chapter 8, Election Commitments - Implementation Report Card). All output election commitments detailed in Labor’s Financial Statement – The First Term of a Bracks Labor Government, with the exception of the final structure of the Essential Services Commission, have been approved and implemented. This includes those high priority commitments that were implemented in 1999-2000 immediately upon the Government coming to office. Decisions have also been taken on new asset investments scheduled to commence in 2000-01. Asset investment projects detailed in Labor’s Financial Statement which are yet to commence are expected to be considered as part of next year’s budget. Further detail on approved election commitments and other policy initiatives can be found in Appendix B, Specific Policy Initiatives Affecting the Budget Position. RESPONSIBLE FINANCIAL MANAGEMENT The Government’s 2000-01 Budget initiatives – including delivery of Labor’s election commitments, establishment of the $1 billion Growing Victoria infrastructure reserve, a commitment to reducing business taxes by a minimum of $200 million by July 2003 and improved government services – will all be delivered within a responsible financial framework. Substantial budget sector operating surplus A budget sector operating surplus of $592 million is forecast for 2000-01 and is projected to average over $450 million over the remainder of the forward estimates period. Chart 1.1 demonstrates that a surplus of this magnitude is required to ensure that the Government’s target of an annual operating surplus of at least $100 million is resilient to moderate economic and other risks to the budget in future years, as well as to preserve budget flexibility (see Chapter 9, Statement of Risks for details of the economic slowdown scenario illustrated in Chart 1.1). 2 Overview Budget Statement 2000-01 Chart 1.1: Budget sector operating surplus 1 600 1 200 800 $ million 400 0 1999-00 2000-01 2001-02 2002-03 2003-04 2000-01 Budget estimate Illustrative slowdown scenario min $100m target Source: Department of Treasury and Finance Prudent net financial liabilities The Government is committed to maintaining state government net financial liabilities at prudent levels and to retaining its triple-A credit rating. The Government has taken advantage of the unexpectedly strong budget position in 1999-2000 to establish the Growing Victoria infrastructure reserve and to reduce both unfunded superannuation liabilities and state borrowings. Victoria’s budget sector net financial liabilities are expected to fall from 10.9 per cent of GSP in June 1999 to 7.7 per cent by June 2004 (see Chart 1.2). In addition, state government net debt is budgeted to fall from $6.2 billion in June 1999 to $4.7 billion in June 2004, or by 24 per cent. Budget Statement 2000-01 Overview 3 Chart 1.2 Budget sector net financial liabilities and net debt (a) 18 18 15 15 12 12 9 9 $ billion % of GSP 6 6 3 3 0 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Net unfunded super Net debt Net financial liabilities (% of GSP) Source: Department of Treasury and Finance Note: (a) Net financial liabilities comprise general government sector net debt (see Uniform Presentation Framework tables in Appendix C) and budget sector net unfunded superannuation liabilities. Certification by Auditor-General For the first time, Victoria’s state budget has been examined by the Auditor-General who has among other things certified that nothing has come to his attention that would cause him to believe that the estimated financial statements are not consistent with the Government’s key financial target of achieving an operating surplus of at least $100 million in each year (see Chapter 10, Estimated Financial Statements and Notes). GROWING THE WHOLE STATE The Government is pursuing strategies to promote growth across the whole State. This will be best ensured by developing an open and flexible economy, with a vibrant and prosperous private sector and a strong and innovative public sector. Maintenance of a growth-orientated economic policy environment, including a fair and competitive taxation system and an efficient regulatory environment, underpinned by a sound state financial performance, is critical to Victoria’s economic development. In addition, the Government has introduced a set of coordinated and complementary strategies to enable Victoria to reap the 4 Overview Budget Statement 2000-01 opportunities from evolving economic, industrial and technological trends. These include: • Linking Victoria – an integrated transport infrastructure program to revitalise the State’s road, rail and port transport; • Skilling Victoria – a program to meet the State’s need for a skilled and flexible workforce; and • Connecting Victoria – a program for developing Victoria’s information and communications technology capabilities and sharing the benefits of these technologies across the entire Victorian community. In addition to the implementation of the Government’s election commitments, this budget includes two major initiatives to facilitate the implementation of these strategies: the establishment of the $1 billion Growing Victoria infrastructure reserve, and proposed cuts to business taxes of at least $200 million by July 2003, together with a major review of Victoria’s tax system. Growing Victoria The Government has established a $1 billion infrastructure reserve, Growing Victoria, to provide a major boost to Victoria’s infrastructure over the next four years. This reserve takes advantage of Victoria’s unexpectedly strong budget position in 1999-2000 associated with exceptionally favourable recent economic and asset market conditions. Capital expenditure of $190 million has already been allocated from Growing Victoria for school modernisation and rail projects. Future investments will be of considerable social and economic benefit to the State and will primarily focus on: • major transport infrastructure projects, especially rail – Linking Victoria; • significant modernisation programs in education and training – Skilling Victoria; and • information and communications technology facilities and capabilities – Connecting Victoria. See Chapter 3, Economic Outlook and Strategy and Chapter 5, Budget Sector Service Delivery for further details. Budget Statement 2000-01 Overview 5 The asset investments financed by this reserve alone will result in a boost of 20 per cent to the Government’s already strong base level of infrastructure investment plans over the next four years (see Chart 1.3). Chart 1.3: Budget sector net purchase of fixed assets 2 000 1 750 1 500 1 250 1 000 $ million 750 500 250 0 1994-95 1996-97 1998-99 2000-01 2002-03 Base level Growing Victoria Source: Department of Treasury and Finance Taxation initiatives The competitiveness of Victoria’s tax regime plays an important role in underpinning economic growth and investment. Victoria’s tax burden is now in line with the average of other Australian States and below that in New South Wales, and the Government is committed to improving Victoria’s tax competitiveness over time. In light of the imminent Commonwealth-driven tax changes, it is essential that the state taxation system be competitive, fair and designed to suit a modern and growing Victoria. To ensure this, the Government will conduct a thorough review of its tax system, the first since 1983, and with a particular focus on business taxes. The review will report by the end of 2000 so that its recommendations on a fair and competitive state tax mix can be considered in the context of the 2001-02 Budget. In addition, to ensure competitive tax levels for Victorian businesses, the Government has built into its budget estimates a reduction in business taxes of at least $200 million by July 2003, including $100 million by 1 July 2001, subject to the maintenance of a minimum $100 million operating surplus.
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