Master Builders Victoria State Budget Overview 2021-22

MASTER BUILDERS VICTORIA STATE BUDGET OVERVIEW 2021-22

332 Albert Street East Melbourne, VIC 3002 ABN 38 004 255 654 RTO 3935

GPO Box 544 Melbourne, VIC 3001

(03) 9411 4555 www.mbav.com.au

Victorian State Budget 2021/22 Overview

1. Introduction Treasurer Tim Pallas handed down the Victorian State Budget on Thursday, 20 May 2021. On behalf of members, Master Builders Victoria (MBV) attended the budget lock-in, and – in time for your weekend reading - we are delighted to provide you with an overview of the budget and how it impacts the building and construction industry.

This is the Andrews Government’s seventh budget. The key themes included mental health, education, hospitals, and regional Victoria. The focus is on recovery, creating jobs and caring for Victorians.

It is evident that, as our community transitions to a post-COVID-19 recovery, the State Government is seeking to reduce costs and address the budget deficit caused by the pandemic. Nevertheless, it appears that our State’s recovery process is progressing well, and the State Government has confirmed that it is working towards achieving a Budget surplus over the coming years.

The Treasurer reported that Victoria is in a strong economic position, with a forecast growth of 6.5 per cent next year. Employment has rebounded, and workforce participation is at an all-time high. The Treasurer suggests that this budget will support 38,000 new jobs each year over the next four years. This budget builds on the work done during COVID-19 and aims to continue to build a strong economy in Victoria off the back of strong infrastructure spending in the 2020/21 budget. The Victorian Government’s pipeline of transport and social infrastructure projects will continue to underpin high levels of investment. With Government infrastructure investment (GII) expected to average $22.5 billion a year over the budget and forward estimates, reflecting a continuation of Victoria’s Big Build.

Here’s a snapshot: VICTORIAN ECONOMIC FORECASTS (PER CENT) 2019/20 actual

2020/21 forecast

2021/22 forecast

2022/23 forecast

2023/24 projection

2024/25 projection

Real gross state product

–0.5

–2.00

6.50

3.25

2.75

2.75

Employment

1.2

–1.00

2.50

1.25

1.75

1.75

Unemployment rate

5.4

6.50

5.75

5.50

5.25

5.25

Consumer price index

1.7

1.50

1.50

1.75

2.00

2.25

Wage price index

2.4

1.25

1.75

2.00

2.25

2.50

Population

1.5

0.00

0.30

1.20

1.70

1.70

Sources: Australian Bureau of Statistics; Department of Treasury and Finance

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VICTORIAN EMPLOYMENT IS RAPIDLY REBOUNDING EMPLOYMENT INDEX (NOVEMBER 2014=100)

120 115 110 105 100 95 90 Jan 2014

Jan 2015

Jan 2016 Victoria

Jan 2017

Jan 2018

Jan 2019

New South Wales

Jan 2020

Jan 2021

Australia excluding Vic.

Victorian Budget Papers 2021/22 Overview page 4

Government forward estimates suggest that Victoria is strong economically – with an operating cash surplus of $1.1 billion now forecast in 2022-23.

Victoria's population growth is expected to grow slightly in 2021-22, rising further by 1.2 per cent in 2022-23, as international borders are expected to open.

Announced in the Budget is confirmation of the increasing housing-related taxes. Further information on this is detailed below.

2. Summary of issues relevant to the building and construction industry 2.1 First Home Owners Grant As members will recall, the First Home Owners Grant (FHOG) was boosted for regional Victoria to $20k until 30 June 2021 as a COVID-19 incentive measure. The Treasurer has confirmed to MBV that the doubling of the grant will not be extended. Nevertheless, MBV is pleased to see that in 2021/22, the FHOG will be retained by the State Government as follows: $10k in regions and $10k in metro areas. This is very welcome news for Victorian homeowners and our sector.

2.2 Victorian Planning Authority MBV is pleased to see that the Victorian Planning Authority (VPA) will receive $21 million to continue programs like Streamlining for Growth, which has delivered 229 projects since it began in 2016 and is estimated to have saved up to $470 million in time and red tape. MBV is hopeful that this investment will be used to streamline growth and improve the planning system. We asked for this -in our pre-budget

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submission, stating that the VPA should urgently lead, develop, and deliver a pipeline of state-led land release across Victoria, with an initial focus on Wodonga, Geelong, Ballarat and Bendigo. On behalf of our members, we will continue to work with the VPA on these important matters.

2.3 Construction Supplier Register and cladding MBV hopes that the Government’s $6.2 million investment into the Construction Supplier Register and Residential Cladding Rectification Registers will boost efficiency in infrastructure procurement and help assess construction businesses working with the Government or fixing cladding while minimising the burden on business by streamlining the procurement process for suppliers working with Government.

On behalf of our members, MBV has been advocating to the State Government to improve the Construction Supplier Register. Therefore, we hope this funding improves the resilience, capacity, and use of the Construction Supplier Register and Residential Cladding Rectification Register. It is expected that the registers will improve procurement efficiency by simplifying and streamlining procurement processes by pre-qualifying suppliers. However, MBV will closely watch this.

In addition, MBV has been liaising with the State Government to simplify the cladding rectification process to ensure that our members can continue to complete these works. This was an important advocacy win for MBV, especially as the Government was not initially willing to allow the original builders to undertake rectification works.

2.4 Tax implications – the good and the bad As foreshadowed last weekend, MBV remains concerned about the impact of increased land and property taxes. While these taxes raise the revenue base by $2.7 billion, it appears that it will detrimentally impact building and construction. Increased taxes may also act as a disincentive to homeowners and investors and may affect the future pipeline of building and construction in Victoria. MBV has been advocating against increased taxes – our media release from Saturday can be found here.

As we currently understand these taxes: Tax reductions 1. Land tax: From 1 January 2022, general land tax will only be payable on holdings valued at $300,000 or more. Holdings valued below $300,000 will be land tax-free. The previous land tax-free threshold was $250,000.

2. Stamp duty: The stamp duty concession threshold for off-the-plan dwellings has been increased to $1 million for transactions entered into between 1 July 2021 and 30 June 2023, provided it’s for owneroccupier purposes.

3. Stamp duty: For contracts entered into from 21 May 2021 to 30 June 2022, a ZERO stamp duty bill will apply to newly-built homes in the Melbourne Local Government Area, provided they have been unsold for at least 12 months since their completion and are valued below $1 million.

4. Stamp duty: For contracts entered into from 1 July 2021 to 30 June 2022, a 50 per cent stamp duty concession will apply to any new residential property in the Melbourne Local Government valued below $1 million, which is not eligible for (c) above.

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Payroll Tax Concessions From 1 July 2021, the Government will: 1. Bring forward increases in the payroll tax-free threshold – up to $700,000 from $650,000.

2. Bring forward reductions in the regional payroll tax-reducing it to 1.2125%.

3. Land Tax: From 1 January 2022, the vacant residential land tax exemption for new developments will be extended to apply for up to two years.

Tax increases 1. Land tax: From 1 January 2022, higher land tax rates will apply for holdings valued at $1.8 million or more.

2. Stamp duty: From 1 July 2022, a higher rate of stamp duty will apply to transactions valued at $2 million or higher.

3. Windfall gains tax: From 1 July 2022, increases in land value resulting from the rezoning of that land will be subject to a 50% tax.

3.1. This will only apply to windfalls in excess of $500,000 3.2. It will only apply to rezoning between zone types rather than between zone sub-categories 3.3. Rezoning to public land is excluded.

3.4. Rezoning to/from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas are also excluded.

4. Mental Health and Wellbeing Levy 4.1. The Mental Health and Wellbeing Levy will begin on 1 January 2022. It will be implemented as a payroll tax surcharge on wages paid in Victoria by businesses with national payrolls over $10 million a year. A rate of 0.5 per cent will apply for businesses with national payrolls above $10 million, and businesses with national payrolls above $100 million will pay an additional 0.5 per cent. The surcharge rates will be paid on the Victorian share of wages above the relevant threshold. Existing payroll tax exemptions for private schools, hospitals, charities, local councils, and wages paid for parental and volunteer leave will apply for the Levy.

MBV will continue to talk to Government about the impacts these taxes will have on our members and our sector. On behalf of our members, we have joined with the Property Council Australia, Urban Development Institute of Australia (Victoria), Housing Industry Association and the Real Estate Institute of Victoria to advocate against these new taxes. We will keep members up to date on our meetings with Government, Opposition and Independents about this issue.

It is important to note that the higher stamp duty rate for transactions of $2 million or higher is not due to come into effect until 1 July 2022. MBV will explore the possibility of having this section amended with State Government so that new homes are exempt, and it applies to established homes only. This may minimise further effects on the residential building and construction industry.

2.5 Skills and Training MBV welcomes the State Government’s investment in skills and training. On behalf of members, MBV met with Minister Gayle Tierney, Minister for Training and Skills and Minister for Higher Education, earlier this week for a pre-briefing on the budget, where we discussed:

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• • • • •

Industry, including MBV, involvement with the Victorian Skills Authority (VSA) to help develop the annual Victorian Skills Plan.

Showcasing apprenticeship success through our apprentice awards in collaboration with TAFEs. Considering a stakeholder-driven consumer awareness campaign on careers in the building and construction industry to drive better awareness of career and training opportunities. This campaign could include extending the focus on attracting women into our industry.

Increased attraction of great trainers into the VET system.

Expansion of the Skill Set funding program to ensure individuals are trained in areas most indemand and allow pathways for those students to full qualifications over time.

During our meeting, the Minister confirmed that a new Victorian Skills Authority (VSA) will replace the Office of the Victorian Skills Commissioner. With an investment of $86 million, the intent of the VSA is to ensure Victorians can access training to obtain a good and secure job. The VSA is also expected to drive innovation across the vocational education and training sector and better plan for future training needs for our community.

An important responsibility of the VSA will also be developing an annual Victorian Skills Plan as recommended in the Skills for Victoria’s Growing Economy report. In our discussions with the Minister, she confirmed that the VSA will continue to consult with industry training providers, such as MBV. This gives us the opportunity to help identify priority areas for training with input into the annual Victorian Skills Plan.

MBV also welcomes the investment of $88.8 million to provide subsidised VET to eligible students, including improving people’s skills and job opportunities. This will deliver up to an extra 12,200 training places, 7,400 of which are at TAFEs. We will continue to advocate for increased attraction of great trainers into the VET system and the extension of scholarships for tradespeople to undertake training qualifications to teach in the non-TAFE sector. We also believe the focus should be on providing scholarships to relevant tradespeople to ensure that the provision of VET is backed by strong industry knowledge.

The State Government will also ensure TAFEs and training providers are adequately funded to deliver high-quality training with a $99.2 million boost to funding rates. A further $12 million will ensure TAFEs have the modern equipment and tools they need to teach apprentices and trainees, such as mobile cranes and 3D Metal Printers.

2.6 New school construction MBV welcomes the State Government’s investment in New School construction, which gives our members opportunities to tender for the building and construction works across Victoria. The Government will build 13 new schools, contributing to its commitment to open 100 new schools across our state by 2026.

The following 12 new schools will be built to open in 2023: • • • • •

Camms Road Primary School (Interim Name); Hayes Hill Primary School (Interim Name); Holyoake Parade Primary School (Interim Name); Lollypop Creek Primary School (Interim Name); Merrifield West Secondary School (Interim Name);

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• • • • • • •

Mount Ridley Special School (Interim Name); Officer Rix Road Primary School (Interim Name); Riverdale East Primary School (Interim Name); Rockbank Murray Road Primary School (Interim Name); Tarneit Missen House Primary School (Interim Name); Wollert East Secondary School (Interim Name); and Wollert West Primary School (Interim Name).

The following new school will be built to open in 2024: •

Truganina North Secondary School (Interim Name)

Additional stages of new schools will also be constructed at three recently-opened schools: • • •

Cranbourne West Secondary College (at least $15.210 million); Elevation Secondary College (at least $25.830 million); and Tarneit Senior College (at least $5.806 million).

Funding is also provided for the operating costs associated with these new schools.

2.8 Mental Health Investment MBV welcomes the State Government’s investment into Mental Health and Wellbeing for our community. We know that those working in the building and construction industry are over 50% more likely to take their own lives. Male construction workers aged 15-24 are more than twice as likely to take their own lives than the general population. Suicide in our industry is a significant issue that requires an industry-led solution. With this in mind, MBV welcomes the Government’s $3.8 billion investment to transform the mental health system. The Government is implementing the Royal Commission's findings into Victoria’s Mental Health System, and it is a significant social reform. Given that our sector has one of the biggest suicides rates, we will continue to liaise with the Government about how we can utilise some of the funding released in this Budget to benefit our members’ mental health and wellbeing.

It is important to note, however, that the funding of this investment will be drawn from payroll tax – as outlined above.

2.7 Infrastructure investment MBV also welcomes the State Government’s continued investment in infrastructure, which gives our members opportunities to tender for these works across Victoria. As part of the continuing Big Build program, the State Government has funded numerous projects - some of which are listed below: • • • • • • •

$28 million to further improve our state’s planning system and speed up the delivery of housing and infrastructure projects in growing communities $2.3 billion investment in rail infrastructure $1.6 billion committed to building 13 new schools and 52 school upgrades, plus $94 million for 17 school upgrades $1.2 billion to upgrade and build more hospitals $623 million for community infrastructure (e.g., Female Friendly Facilities Fund) $179.4 million Fisherman’s Bend Innovation Precinct – infrastructure and road link $87.6 million for local infrastructure and programs from playgrounds to libraries

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• • • • •

$65 million for aged care facilities in regional Victoria in Camperdown and Rutherglen $10.1 million investment in a state-of-the-art facility for La Trobe University’s Bundoora Sports Park $10 million for the Morwell Food Manufacturing Precinct $9.1 million to build an Aboriginal refuge in Horsham $507 million to build mental health facilities in response to recommendations from the Mental health Royal Commission

Below is a graph detailing the Government’s investment in infrastructure.

GOVERNMENT INFRASTRUCTURE INVESTMENT Average GII 2021-22 to 2024-25 ($22.5 billion)

25

$ billion

20 Average GII 2015-16 to 2024-25 ($15.5 billion)

15 10

Average GII 2005-06 to 2014-15 ($4.9 billion)

5 0

2005-06

2007-08

2009-10

2011-12

2013-14

2015-16

2017-18

2019-20

2021-22

2023-24

Victorian Budget Papers 2021/22 Overview p. 16

3. Planning New funding in this year’s Budget for planning includes: • • • •

A Future Homes project that is aimed at a faster planning process for some homes. $21 million to continue the Streamlining for Growth program; $6.6 million on further implementing Plan Melbourne – which is the planning strategy to 2050; Continued work on protection of green wedge land and the state’s agricultural land and some areas of Victoria, including the Bellarine Peninsula and Bass Coast;

This additional funding and projects build on last year’s announcement of a $111 million investment to develop a better planning system. MBV will continue to work with the Minister for Planning throughout this process.

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4. Conclusion Overall, MBV considers that this Budget is not all bad. However, whilst some elements of it are favourable to our industry, some of the painful tax hikes outweigh this. For example, the net cost of the tax measures is projected by the Victorian Treasury to come to $830.2 million over four years or $207.6 million per year to 2024-25.

Modelling by Master Builders Australia suggests that these measures could result in a total economic loss of about $601.9 million per year or about 5,415 full-time jobs across our economy. This is concerning for MBV, especially since Victoria and Australia are still in the middle of the global pandemic.

On behalf of our members, we will continue to discuss with Government if this is the right time to increase taxes and introduce new ones. Ultimately, MBV remains committed to being part of a constructive conversation about appropriate tax reform for Victoria, and we will continue to keep you updated as this progress.

Alongside other industry associations and unions, we look forward to continuing to work with the State Government to build a better future for our State.

The MBV media release in response to the State Budget can be found here.

5. Need further information?

We hope you have found this 2021/22 Budget overview of use. If you need further information, please contact MBAssist on (03) 9411 4555 or at MBAssist@mbav.com.au.

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