Budget Statement 2002-03 Presented by The Honourable John Brumby, M.P. Treasurer of the State of Victoria for the information of Honourable Members Budget Paper No.2 TABLE OF CONTENTS 2002-03 Budget highlights ................................................................................1 Chapter 1: Financial policy objectives and strategies ...................................9 Financial strategies, objectives and priorities ............................................................. 9 Seeking a better Commonwealth-State funding deal................................................ 21 Chapter 2: Budget position and outlook .......................................................25 2002-03 Budget initiatives ........................................................................................ 26 2002-03 Budget estimates........................................................................................ 30 Forward estimates outlook 2002-03 to 2005-06 ....................................................... 34 Reconciliation of forward estimates to previously published estimates..................... 37 Use of cash resources .............................................................................................. 42 Chapter 3: Economic conditions and outlook ..............................................45 World and Australian economic environment ........................................................... 45 Victorian economic conditions .................................................................................. 47 Victorian economic outlook....................................................................................... 54 Chapter 4: Budget initiatives ..........................................................................57 Growing Victoria Together ........................................................................................ 58 Investing for our future – stronger communities........................................................ 59 Thriving and innovative industries across Victoria .................................................... 61 Valuing and investing in lifelong education ............................................................... 66 High quality, accessible health and community services .......................................... 73 Public safety and justice ........................................................................................... 82 Other Growing Victoria Together strategies.............................................................. 84 Chapter 5: Balance sheet management and outlook ...................................95 Asset management strategy ..................................................................................... 96 Liability management strategy ................................................................................ 100 Net assets............................................................................................................... 107 Chapter 6: Statement of Risks......................................................................111 Economic risks ....................................................................................................... 111 Sensitivity of the budget to economic conditions .................................................... 112 Expenditure and revenue risks ............................................................................... 119 Contingent liabilities................................................................................................ 120 Chapter 7: Estimated Financial Statements and notes..............................131 Introduction............................................................................................................. 131 Estimated Financial Statements for the Victorian general government (budget) sector............................................................................................................... 132 Notes to the Estimated Financial Statements ......................................................... 135 Department of Treasury and Finance Statement in relation to the Estimated Financial Statements ....................................................................................... 167 i Table of Contents – continued Appendix A: Specific policy initiatives affecting the budget position .....169 Output and asset investment initiatives...................................................................169 Revenue initiatives ..................................................................................................216 Savings initiatives....................................................................................................218 Appendix B: Growing Victoria Infrastructure Reserve...............................219 Appendix C: Revised 2001-02 budget outcome..........................................221 Revised 2001-02 Statement of Financial Performance ...........................................221 Revised 2001-02 Cash Flow Statement ..................................................................228 Revised 2001-02 Statement of Financial Position...................................................231 Appendix D: Historical and forward estimates tables................................233 Appendix E: Uniform presentation of Government Finance Statistics ....253 The accrual GFS presentation ................................................................................253 Institutional sectors..................................................................................................254 Appendix F: Tax expenditures......................................................................271 Appendix G: Commonwealth-State financial relations ..............................277 Appendix H: Requirements of the Financial Management (Financial Responsibility) Act 2000................................................................................281 Style Conventions..........................................................................................283 Index ................................................................................................................285 ii 2002-03 BUDGET HIGHLIGHTS Growing Victoria Together – priorities for the 2002-03 Budget • The Bracks Government’s vision for Victoria is that by 2010 we will be a State where: – innovation leads to thriving industries generating high quality jobs; – protecting the environment for future generations is built into all government decision making; – there are caring, safe communities with equitable opportunities; and – all Victorians have access to the highest quality health and education services all through their lives. • The priority actions required to deliver these long-term commitments are identified in Growing Victoria Together and have guided budget choices and the directions of government departments in the 2002-03 Budget. • The 2002-03 Budget invests for Victoria’s future. It invests in more jobs and stronger communities, with education and innovation driving new opportunities. Sound financial management • The Bracks Government believes that a strong and secure financial base provides an essential foundation for Victoria’s long-term economic, social and environmental wellbeing. • Demonstrating the Government’s commitment to sound financial management, the 2002-03 Budget delivers: – a substantial general government operating surplus of $522 million in 2002-03, and surpluses averaging around $600 million for the following three years; Budget Statement 2002-03 Highlights 1 – a reduction in general government net financial liabilities, excluding Growing Victoria infrastructure reserve, from $16.3 billion or 10.8 per cent of gross state product (GSP) at 30 June 1999 to an estimated $15.9 billion or 7.1 per cent of GSP at 30 June 2006; – over the same period general government net debt, excluding Growing Victoria infrastructure reserve, is expected fall by more than half from $4.9 billion or 3.3 per cent of GSP in June 1999 to $2.3 billion or 1.0 per cent of GSP in June 2006; – new output initiatives worth $317 million in 2002-03 and averaging $326 million per annum over the following three years; – $3 billion total estimated investment (TEI) to boost infrastructure assets, including the Scoresby Freeway; and – through Building Tomorrow’s Businesses Today, tax cuts of $262 million over the next four years. • The Government’s prudent financial management was acknowledged recently with the international ratings agencies Standard and Poor’s and Moody’s affirming Victoria’s triple-A credit rating. A growing economy – Victoria leads the way • Despite the global slowdown, the Victorian economy performed strongly over the past year, exceeding the national average in key measures such as consumer spending, business investment and employment. • Domestic demand rebounded strongly during calendar 2001, particularly in the second half, underpinned by consumer spending, government capital expenditure and acceleration in housing construction. • The Victorian labour market recorded further solid gains following on from its exceptionally strong employment growth in 2000-01. • Recent evidence of a global recovery is positive for the 2002-03 outlook. • Victorian economic growth is now estimated at 3.75 per cent in 2001-02, exceeding the original budget estimate of 2.75 per cent, and 3.5 per cent in 2002-03. • Employment is forecast to grow 1.5 per cent in 2002-03, following 1.25 per cent in 2001-02. 2 Highlights Budget Statement 2002-03 Investing for