Shortly after the October Federal Budget was handed down, I wrote an article in which I asked a simple question:
“How much will the States and Territories be willing to forgo in the significant amounts of revenue currently generated by payroll taxes so as to facilitate a Federal Government jobs-led recovery for the post-COVID Australian economy?”
As readers would be aware, the October Federal Budget was a big-spending and business-friendly Budget designed to do one thing only – stimulate the post-COVID Australian economy so as to create jobs, jobs, and more jobs!
At the time, the Federal Government also directly challenged the States and Territories to “borrow in order to rebuild” employment after the COVID-19 crisis and it expressly challenged them to share in the fiscal heavy-lifting required to rebuild the Australian economy.
On Tuesday 24 November 2020, the Victorian Government arguably answered Canberra’s question in the affirmative when it handed down its 2021 State Budget. With Victorian unemployment tipped to remain in the 6% to 8% range until 2023 – almost double the 4.6% State unemployment level in 2019 – the State Government focus in this Budget has been on the creation of new jobs, large infrastructure projects, construction and incentives for reskilling and apprenticeships.
In the same fiscal stimulatory manner that was employed by Labor Governments both during and post the GFC, the Victorian Labor government will spend close to $50 billion over the next four years in order to create 400,000 new jobs in the next 5 years, in a big-spending Budget which will leave Victoria owing $155 billion in net debt by 2024 and leave it with the unenvied title of Australia’s most indebted State.
The Victorian Government will try to recover the more than 180,000 jobs lost between March and September 2020 during the State’s extended COVID-19 lockdown period by providing tax breaks for business, wage subsidies for women and young workers and will also create a record “big build” across infrastructure, housing and schools.
The centrepiece of the State Budget is a so-called “Jobs Plan” which is premised on a strong economic rebound with State economic growth forecast to radically reverse from a 4 per cent contraction in 2021 to almost double to a staggering 7.75 per cent growth in 2022. The interim jobs target of the State Government is to create 200,000 jobs by 2022, including 125,000 from this year’s budget spending, tax breaks and wage subsidies, which leaves this year’s budget forecast to reach a $23.3 billion deficit.
These State Treasury estimates are extremely ambitious when viewed in line with the October growth estimates of the Federal Government which had Australia’s economy growing from a 1.5% contraction in 2021 to be 4.75% in 2022. The Victorian economic growth estimate of 7.75% in 2022 far exceeds the Federal Government’s 2022 national economic growth estimate and it is obvious that the Victorian Government is aiming to be a significant player in Australia’s post-COVID19 economic recovery.
Included in over $2.4 billion in jobs spending by the Victorian Government is $150 million to support Victorian business to hire 6,000 women, and a $10 million fund to provide startup capital for female entrepreneurs. A $170 million free kindergarten program, $82 million to boost after-school care, $5.6 billion in education funding, and additional funding for new child protection workers and domestic and sexual violence counsellors are also earmarked as directly benefiting the hiring of women workers.
The State Government will attempt to stimulate post COVID19 Victorian employment by providing a continued commitment to payroll tax payment deferral for businesses with payroll costs of up to $10 million for the 2021 financial year, including the extension of deferral payment dates by 12 months (previously 9 months). This measure will provide a $1.7 billion cash boost for Victorian small and medium-sized (SME) businesses.
From 1 July 2021, Victorian SME employers will be given the option to pay payroll tax annually rather than monthly if their annual Victoria payroll tax liabilities are less than $100,000 (an increase from the previous threshold of $40,000). This initiative is predicted to provide an additional $309 million of support to 7,000 Victorian SME businesses by cutting red tape and boosting cashflow.
The Government has also brought forward a reduction in the payroll tax rate for regional businesses in communities worst affected by the 2019/20 Bushfires, reducing the rate to 1.2125% (25% of the metropolitan rate) retrospectively from 1 July 2019.
Victorian SME businesses with annual Australian group wages less than $10 million will also receive a new non-refundable Payroll Tax Credit of 10 cents for every dollar of Victorian taxable wages above the previous year’s amount in order to encourage the re-employment of staff, restore hours and hire new staff after the COVID19 lockdowns. This scheme will run for the 2021 and 2022 financial years and is aimed at reducing the amount of payroll tax paid by Victorian SME businesses expanding their workforce capacity after the lockdowns.
The Victorian Government will spend $836 million on this new Jobs Tax Credit Scheme as a means of providing these incentives for SME businesses to hire/rehire an estimated 9,400 employees and to restore their working hours. This amount is on top of the more than $1 billion in payroll tax refunds and waivers the Victorian Government has provided since the COVID19 pandemic began.
The Victorian Government has not only answered, but has arguably far exceeded, the Federal Government’s post COVID19 employment rebuilding call. Many Victorian SME businesses and regional businesses will directly benefit with the introduction of further taxation concessions, exemptions and initiatives seeking to provide immediate tax relief and cash-flow support in the short-term.
The mantra of “We Are All in This Together” has been well and truly embraced by the Victorian Government in what can only be seen as a big-spending high-incentive business-friendly jobs-creating State Budget. Canberra should be very pleased!