The state of the Victorian economyA State of strong growth

Treasurer of VictoriaJohn Lenders MPPresentation to CEDA24 October 2007

Victoria’s economy is strong

0

1

2

3

4

5

6

7

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Non-resource states and territories VictoriaResource states and territories

GSP growth

Sources: Australian Bureau of Statistics, Vic Budget 2007-08, other Jurisdictions’ budget papers

Estim

ate

%

Strong employment growth

0

10

20

30

40

50

60

70

Vic Qld WA NSW SA Tas

'000Increase over 2007

Source: Australian Bureau of Statistics

Strong population growth

0.0

0.5

1.0

1.5

2.0

1971-72 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04

Victoria Australia

Per cent

Source: Australian Bureau Statistics

Source: Australian Bureau of Statistics

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Melbourne Sydney

Per cent Annual population growth

Melbourne’s population is booming

Highest building approvals in 2006-07

$17.3

$16.6

$17.8

16.0

16.5

17.0

17.5

18.0

Queensland NSW Victoria

$ billion

Source: Australian Bureau Statistics

More R&D in Victoria

0.0

0.3

0.6

0.9

1.2

1.5

Vic WA NSW SA Qld Tas

Per centBusiness expenditure 2005-06 on R&D as a share of GSP

Source: Australian Bureau Statistics

Strong economic performance

Short-term risks

+ Strong growth in emerging economies+ Slowdown in the US economy+ Inflation (oil prices, wage pressures)+ Interest rates and housing affordability+ Agricultural conditions

Longer-term challenges

+ Managing Victoria’s growth– Melbourne 2030– Promoting Provincial Victoria as a place to live,

work and raise a family

+ Dealing with an ageing population

+ Boosting productivity and participation

+ Minimising impact of climate change / carbon constrained economy

Premier’s seven priorities

1. Education, skills and lifelong learning – including early childhood development

2. Making Government more accountable and the Executive more accessible

3. Accelerating public transport improvements4. Improving urban development and planning – particularly in

the outer suburbs5. Tackling cancer and the epidemic of preventable chronic

disease, such as diabetes6. Strengthening the delivery of major projects7. Delivering improved services to our farmers as they recover

from drought and bushfires

Tax competitivenessTax burden differential between Victoria and other jurisdictions

-2

-1

0

1

1990-91 1993-94 1996-97 1999-00 2002-03 2005-06

NSW Qld WA Aus

%pts difference in tax to gsp ratio

Source: Australian Bureau of Statistics, Budget papers, AFR

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Qld Vic SA WA NSW Tas NT ACT

• Reduces payroll tax rate to 5% over next two financial years – cuts costs by $533 million for over 20,000 businesses

Payroll tax rates compared

Source: Department of Treasury and Finance

Reducing the Regulatory Burden

Three elements:

1. Commitment to cut the existing administrative burden by

15% over 3 years and 25% over 5 years.

2. Ensuring the administrative burden of any new regulation is

met by an ‘offsetting simplification’ in the same area.

3. Targeting hot-spots through a program of reviews and

incentives

Savings over 3 and 5 years

+ 15 per cent net reduction by end of 3 years (July 2009) = $154 million per annum

+ 25 per cent net reduction by end of 5 years (July 2011) = $256 million per annum

+ 0.44 per cent boost to Victoria’s GSP will inject around $750 million per year into the economy, by July 2011

Highest infrastructure spend ever recorded

$3.6 billion infrastructure spend in 2007-08

0 500

1 0001 5002 0002 5003 0003 5004 000

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

$ million

Source: Victorian Budget Papers

Government projects in the pipeline+ Meeting Our Transport Challenges

– Port of Melbourne Channel Deepening– Geelong Bypass

+ Our Water, Our Future– Bendigo pipeline – Foodbowl, – Desalination Plant – Gippsland Water Factory

+ Schools– modernisation and regeneration

+ Health and Community Services– Royal Children’s Hospital redevelopment– 2350 Housing units – new or upgraded

+ Cultural– Melbourne Convention Centre – Rectangular Sports Stadium – Melbourne Recital Centre and MTC

Leadership on PPPs

+ First Australian Government to develop a policy framework for PPPs

+ First in Australia to develop detailed guidelines for PPPs

+ First to develop Standard Commercial Principles for PPPs

+ Victoria’s model and guidelines followed by other States, other countries and the World Bank

+ 16 contracted Partnerships Victoria projects worth around $4.5 billion

PPPs and education: better schools, better schooling+ Better designed, modern schools, leading to best

practice educational outcomes by effective use of technology and flexibility in teaching approaches.

+ Allows Principals to focus more on teaching and leadership – and less on administration and maintenance.

+ Delivers high quality schools on time and on budget to communities in need.

+ Extends access to school facilities to the broader community outside of school hours

Paying dividends: schools and skills

05

101520

25303540

4550

Vic.

NSW

Qld WA SA

Tas.

Apprentice and trainee completions over twelve months to March 2007

Source: National Centre for Vocational Education Research

50

60

70

80

90

Vic.

NSW Qld WA SA

Tas.

19992006

Proportion of 20-24 year olds who have completed Year 12 or equivalent

Source: Unpublished ABS data

Action on climate change

+ Support for a National Emissions Trading Scheme (NETS)

+ Victorian Renewable Energy Target (VRET) scheme to support wind power and other low emissions generation

+ Energy Technology Innovation Strategy (ETIS) to fund research into low emissions technologies

+ Energy efficiency programs aimed at households and home builders, including the proposed Victorian Energy Efficiency Target (VEET) scheme

+ Commitment to reduce or offset emissions from government energy and vehicle use

2005 2007

The Commonwealth raises more revenue, but grants to the States remain stagnant

State Tax Revenue, Commonwealth Transfers to the States and Commonwealth Tax RevenuePercentage of GDP, 1970 to 2000

5.5%6.4%5.3%4.9% 5.1%5.5%6.7%6.2%

25%22%23%

20%

0

36

9

1215

18

2124

27

1970's Average 1980's Average 1990's Average 2000's Average*

Tran

sfer

s or

taxe

s as

a %

of G

DP

State Tax Revenue as a Share of GDP Transfers to the States As a % of GDP Commonwealth Tax Revenue As a % of GDP

Commonwealth Tax Revenue24% Growth

Transfers to the States-17% Growth

* Grants net of State taxes abolished.Sources: Australian Bureau of Statistics, Cat No: 5206 and Commonwealth 2007-08 Mid Year Fiscal and Economic

2005 2007

The myth that we’re better off under the GST

GST Revenue Received Compared with the Guaranteed Minimum Amount 2000-01 to 2006-07

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

$ m

illio

n

GMA Recalculated GMA** GST Revenue Received - Victoria

WHAT WINDFALL?

Source: Commonwealth Government Budget 2007-08 and Final Budget Outcomes 2001 to 2005* Estimates** Includes value of taxes already abolished by Victoria, but yet to be abolished in some other States. The recalculated GMA does not include a re-estimate of financial assistance grants and revenue replacement payments

2005 2007

Victoria’s GST and SPP shortfall continues

Redistribution of Commonwealth Grants* to the Statescompared to Equal Per Capita shares (2007-08)

$144 $166

$817$986

$1,865

-$2,162

-$1,830

$8

-$2,500

-$2,000

-$1,500

-$1,000

-$500

$0

$500

$1,000

$1,500

$2,000

NSW VIC ACT QLD WA TAS SA NT

$ m

illio

n

* GST and Specific Purpose PaymentsSources: Commonwealth Government 2007-08 Mid-Year Economic and Financial Outlook, and Commonwealth Grants Commission 2007 Update relativities.

The state of the Victorian economyFuture policy directions

Treasurer of VictoriaJohn Lenders MPPresentation to CEDA24 October 2007