Victoria Ends EV Incentives, Introduces New Levies to Reduce Debt

Victoria’s Budget Adjustments: New Levies and Incentive Cutbacks Amidst Economic Challenges

The Victorian government is taking significant steps to manage its budget by eliminating incentives for electric vehicle users and implementing a new levy for emergency services. Treasurer Tim Pallas revealed these measures, coinciding with the release of the state’s mid-year budget update, which highlighted a growing deficit for 2024/25.

According to the budget update, the projected deficit for 2024/25 has increased to $3.6 billion, from an earlier prediction of $2.2 billion made in May. Despite this, there has been a reduction in net debt from a forecasted $178.3 billion to $155.2 billion, with improvements noted across forward estimates.

Among the key changes announced is the cessation of the $100 registration discount for zero and low-emission vehicles. This alteration, effective from January 1, is expected to generate $165 million in additional revenue over three years. Pallas justified the decision by stating that the adoption of electric vehicles has “quadrupled,” diminishing the need for such incentives.

Additionally, the government plans to replace the fire services property levy with an “emergency services and volunteers fund,” beginning July 1. Property owners will contribute to this fund, which aims to collect $2.14 billion over three years to support organizations such as the Country Fire Authority and Fire Rescue Victoria. Pallas emphasized the necessity of this fund by acknowledging the increasing frequency and cost of natural disasters.

Changes to the congestion levy are also on the horizon. This levy, affecting off-street parking in inner Melbourne, will rise from $1,750 to $3,030 in high-demand areas, and from $1,240 to $2,150 in other regions, with expansions to cover additional suburbs. This adjustment is projected to raise approximately $307 million.

Despite these new revenue streams, Pallas pointed out that hospital spending, increased by $1.5 billion, contributed to the state’s financial shortfall. Nonetheless, he expressed confidence in his “sensible, disciplined approach” to budget management, stating that Victoria uniquely exhibits a declining net debt proportion relative to its economy.

Opposition leader John Pesutto criticized these measures, labeling them as a “massive tax grab” and arguing that the government lacks a “proper plan to stabilize and reduce debt.” Meanwhile, economists have offered varied opinions on the fiscal strategies. Saul Eslake cautioned against over-reliance on growth, suggesting that reducing expenses and raising revenue might be necessary. His views were published in an analysis in the Australian Financial Review.

In contrast, Greg Jericho from the Australia Institute argued that Victoria’s budget and economy are not as dire as portrayed, citing significant increases in public net worth. David Hayward from RMIT University echoed concerns about the focus on debt, advising a slowdown in infrastructure projects rather than cancellations. He warned against cost overruns in public-private partnerships.

Economist Zac Gross from Monash University suggested a balanced view, recognizing the economy’s strength but acknowledging budgetary strain. He proposed that increasing housing supply through regulatory easing could bolster the state’s finances by expanding the taxpayer base.