Victorian Economic Projections

Indicator 09/10

Actual

10/11

Forecast

11/12

Forecast

12/13

Forecast

13/14

Forecast

Real gross state

product 2.00 2.50 3.00 2.75 2.75

Employment 2.80 3.50 1.75 1.75 1.75

Unemployment

rate 5.50 5.25 5.00 5.00 4.75

Consumer price

index 2.10 3.00 2.75 2.50 2.50

Wage price index 2.80 3.75 3.75 3.50 3.50

Population 1.80 1.70 1.50 1.50 1.50

Source: Australian Bureau of Statistics, Department of Treasury and Finance

0.0

1.0

2.0

3.0

4.0

5.0

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

% Annual

Change

Real GDP Growth2009/10 - 2014/15

Australia Victoria

Source: Department of Treasury & Finance

Forecast

In a challenging financial climate, delivering $5.2 billion in election commitments was the key focus when the Victorian Treasurer recently handed down the 2011/12 State Budget.

The Victorian Economy

The outlook for the international economy has improved largely driven

by growth in emerging economies. The outlook for emerging and

developing economies remains strong, especially for Victoria’s major

trading partners in Asia, with the IMF forecasting 6.5% growth in both

2011 and 2012. This should support growth in Victoria’s exports over

the medium term.

Victoria’s divergent economic base has been a major factor in the

resilience of the Victorian economy in recent years. Over the past

decade, Victoria has largely relied on population growth to drive its

economic performance. According to the Coalition government, over

the same time productivity growth has declined from an average annual

growth rate of 2.8% in the five years to 1999/2000 to just 0.7% in the

five years to 2009/10.

Overall, the outlook for the Victorian economy

is positive; however, the State faces a number

of short and medium-term challenges.

The sustained commodities boom provides significant opportunities for

the Australian and Victorian economies. Victoria is likely to continue to

benefit from interstate trade links with the resource-rich states and

territories, particularly for services demanded by the mining industry.

However, the commodities boom has also resulted in a high Australian

dollar, reducing the competitiveness of Victoria’s exports sector. This,

together with a prolonged and uneven recovery in the global economy

and higher oil prices, is already adversely affecting Victoria’s

manufacturing, education and tourism industries.

The Victorian economy is expected to grow more moderately than

previously forecast over the next four years as a result of weaker than

expected business investment and the floods of early 2011. Forecast

gross state product (GSP) growth in 2010/11 is now expected to be

2.5%, rising to 3% in 2011/12. The budget also revises Victoria’s long-

term trend growth projection down from 3% to 2.75%.

Population growth has slowed in Victoria to 1.7% over the year to

September 2010, compared with the peak of 2.2% growth achieved

over the year to June 2009. The slow down in population growth

reflects lower net overseas migration – a trend which is expected to

continue and dampen economic growth.

Employment has continued to increase strongly in Victoria, with

3.5% growth over the year to March 2011, representing close to

an additional 100,000 jobs. Over the past year, job increases were

greatest in the health care & social assistance, construction and

professional services industries. Employment is likely to continue to

grow over the rest of 2010/11 and into 2011/12, but the rate of growth

is expected to moderate.

As a result of falling GST revenue the Victorian Government is budgeting

for an operating surplus (net result from transactions) of $140 million in

2011/12. Despite a cut in state spending from 8% a year to 3% per year,

net debt will almost treble from $8 billion in mid 2010 to $23 billion in

2015. Although debt is forecast to increase significantly, Victoria will

retain its AAA credit rating with net financial liabilities peaking below

review triggers.

Planning

More than $34 million has been allocated over the next four years in

the 2011/12 Victorian Budget to Victoria’s planning system. Major

planning initiatives include:

• $5 million over the next four years to revitalise the Frankston

Activities Area;

• $9.7 million over the next four years to plan for Melbourne’s

growth, catering for the needs of growing regional communities

and provide certainty for coastal communities;

• $6.9 million for the Changing Places Program which provides

urban improvement grants for capital works and other strategic

projects in metropolitan centres and regional cities and towns.

2011 Victorian Budget Wrap2011 Victorian Budget Wrap2011 Victorian Budget Wrap2011 Victorian Budget Wrap

Infrastructure

The budget provides $6 billion of funding for infrastructure investment

in 2011/12 with a focus on public transport and regional areas.

Public Transport

Major public transport projects include:

• $222 million for seven new trains – the first of 40 new trains for

Melbourne commuters;

• An additional $100 million for maintenance over four years;

• $16.5 million to begin removing level crossings at key locations;

• $11.9 million upgrade of Balaclava station;

• $2 million to plan for the upgraded Ringwood station;

• $10 million over four years to establish the Victorian Public

Transport Development Authority. The Authority will plan, co-

ordinate and manage the public transport program. The

Authority will be a single public transport authority to

administer our trains, trams and buses, replacing the current

structure of multiple agencies and authorities;

• $6.5 million over two years for the Doncaster rail link planning

study;

• $2 million over two years for a feasibility study into a rail line to

Rowville;

• $4 million over four years for an inter-capital high-speed rail

planning unit within the Victorian Public Transport Development

Authority;

• $6.5 million for a two-year feasibility study into a Melbourne

Airport Rail Link.

Roads

The budget allocates $601 million to fund key road projects including:

• $20 million for planning and early works for the Dingley bypass

between Warrigal and Westall Roads (to link new residential

growth areas to employment hubs;

• $50 million for the Koo Wee Rup bypass;

• $93 million for the next stage of the M80 upgrade (Edgars Road

to Plenty Road);

• $23 million to increase maintenance funding for arterial roads.

Regional Victoria

This budget also includes significant investment in Regional Victoria by

providing funding for:

• $1 billion Regional Growth Fund available from July 1, 2011. The

fund will be used to create jobs, build and upgrade local services

and infrastructure, and invest in local skills and industries in

regional Victoria. The Fund’s first allocation of $500 million will

be made over the next four years;

• $20 million over four years for a Regional Aviation Fund. This

fund will be used to upgrade aviation infrastructure at a number

of regional public-use airports throughout Victoria;

• $160 million over four years for country roads and bridges;

• $50 million for the Western Highway duplication between

Burrumbeet and Beaufort;

• $3 million over two years to start planning a direct rail link to

Avalon Airport;

• $2.5 million to re-open Talbot station;

• $1 million to plan for new station at Grovedale;

• $700,000 for the plan to upgrade the Ballan Railway station;

• $500,000 to extend Bendigo trains to Epsom and Eaglehawk;

• $2 million to investigate reviving rail connections between

Geelong, Ballarat and Bendigo.

In addition to the Victorian Government’s infrastructure projects, the

Federal Government has also committed to spend $1.1 billion (for the

second year running – a disproportionately small share of federal

infrastructure funding). Major projects include: $62.5 million to extend

the Geelong Ring Road, $52 million for two road, rail and port

intermodal facilities and $120 million to strengthen the West Gate

Bridge.

Housing

With Victorian housing becoming increasingly unaffordable, the

Victorian Government aims to continue to encourage first homebuyers

in the State.

Stamp duty will be progressively reduced by 50% for first homebuyers

purchasing principal places of residence valued up to $600,000.

The budget also provides funding to maintain assistance currently

available to first homebuyers through the First Home Owner Grant, and

extends the First Home Bonus (including the Regional Bonus) to 30 June

2012. Eligible applicants will receive the First Home Owner Grant of

$7,000 when buying homes valued up to $750,000.

First homebuyers purchasing or building a newly-constructed home

worth up to $600,000 can also access the First Home Bonus which

provides $19,500 for a home in a regional area and $13,000 for a home

in metropolitan Melbourne.

Young farmers aged under 35 who buy their first farmland property

valued up to $300,000 will be exempt from paying stamp duty. The

budget also introduces a stamp duty concession for farmland properties

valued between $300,000 and $400,000.

ContactContactContactContact Richard Jenkins– Research Manager richard.jenkins@opteonvictoria.com.au

Office AddressOffice AddressOffice AddressOffice Address 757 Bourke St, Docklands VIC 3008

Ph: 1300 786 022

WebsiteWebsiteWebsiteWebsite www.opteonvictoria.com.au

EmailEmailEmailEmail valuers@opteonvictoria.com.au

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First Home Buyer Land Transfer Duty Reduction Schedule

Cut -20% -10%

(30% in total)

-10%

(40% in total)

-10%

(50% in total)

Timing 1 Jul 11 1 Jan 13 1 Jan 14 1 Sep 14

Source: Department of Treasury and Finance