Landlords given tax reprieve as Victoria stays on track for skinny surplus

Landlords and farmers have been given an unexpected Christmas gift after increases to the contentious emergency services levy were postponed until after the election.

An unexpected $1.5 billion windfall in the state’s finances has kept it on track to deliver its first operating surplus since the pandemic, but most of the extra revenue will be absorbed by tax exemptions and other spending.

Victoria’s mid-year budget update on Friday revealed planned increases to the amount paid for the Emergency Services and Volunteers Fund will be postponed until July 1, 2027.

A charge on residential homes that are not the principal place of residence, such as investment properties, was scheduled to increase from $136 per household on July 1, 2026 to $275 but will be delayed by 12 months.

This will cost the government $133 million in forgone revenue, which the budget update said would “provide time to finalise and test information sharing arrangements” as the State Revenue Office works out how to enforce the change.

Tax rises for farmers have also been pushed back until after next year’s state election.

In May, the Allan government said it would pause a planned increase to the emergency services levy for primary producers until 2026 amid a backlash in regional Victoria and concerns over the impact of the charge on drought-affected farmers.

Treasurer Jaclyn Symes said this would remain until 2027 because of dry conditions and the fact farmers would need time to recover financially.

The government is also expecting to generate less revenue from its expanded congestion tax than it originally expected, after it introduced a concession for the new charges on retail parking spaces to placate furious members of the Shopping Centre Council of Australia.

The mid-year budget update confirmed the Allan government was headed towards an operating surplus of $700 million, a $100 million improvement on its initial forecast.

However, it has again shown no signs of reining in spending. Recurrent government expenses are now projected to reach $109 billion this year, up from the $107.7 billion forecast when the budget was released in May.

This was offset by an extra $1.5 billion in revenue that was not accounted for in the budget, largely driven by higher-than-expected stamp duty.

The government wages bill – a focus of the Silver review of the public service released on Thursday – also continues to climb. Employee expenses are forecast to top $39 billion.

When asked why the extra $1.5 billion wasn’t put towards higher surpluses, Symes said she made no apologies for spending state money on things such as school uniforms, dentistry and free public transport for children while balancing the need to pay down debt.

“We can bank more and more and have higher surpluses, or we can make sure we’re delivering the services that Victorians rely on,” she said.

“Importantly, we are delivering a surplus. I’m proud of that. It shows that we have a strong financial discipline to the way we approach the state budget.”

The revised forecast operating surplus of $700 million is a marginal improvement on the $611 million forecast in May but remains a touch-and-go proposition for Symes as she heads into an election year.

Once the cost of the government’s massive capital works program is taken into account, Victoria remains in the red, with a cash deficit of nearly $10 billion.

Over the forward estimates of the updated budget, the state will spend $32 billion more than it generates in revenue.

Growth in state net debt will be slower than expected six months ago. This year’s figure will come in at $165.8 billion and climb to $192.6 billion by June 30, 2029.

Symes said net debt as a proportion of gross state product was on track to peak and decline, the final step in the government’s fiscal strategy.

That figure is currently estimated to peak at 25.2 per cent of GSP by 2027, falling to 24.9 per cent by 2029.

“This is good news for Victorians, but really good news for the economy, as well,” Symes said.

“Our plan is working. We have a disciplined approach to that. I have guardrails which guide my approach to the management of the state finances, and that is proving to be the right path.”

The 2025-26 total tax take of $42 billion is up from the $41.7 billion forecast in May. This year, the cost of the state’s interest repayments on its total borrowings is $7.72 billion, up from $7.6 billion.

Interest expenses are forecast to hit $10.6 billion by 2029.

Opposition Leader Jess Wilson said the increased interest costs represented a blowout of $1 million a day since June 30.

“That means that we cannot invest in the essential services that Victorians desperately need,” she said.

“The interest bill alone could fund Victoria Police, Ambulance, Victoria and all the family violence services combined.”

Rebecca Hrvatin, an analyst at ratings agency S&P Global Ratings, said the budget was consistent with their expectations for Victoria’s AA rating.

This rating continues to rely on the government’s ability to deliver ongoing cash operating surpluses and show fiscal restraint before the November 2026 election, she said.

A $527 million reduction in the state’s operating result has been put down to “administrative variations”, which stem from high-than-expected demand for services and higher depreciation.

Under the government’s economic forecasts, the state economy is forecast to grow at a revised 2.25 per cent this year.

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