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Melbourne Water tapped the state for extra cash – to pay it back for an unexpected tax bill
By Rachel Eddie
Melbourne Water had to borrow more money from the state to pay a bigger-than-expected land tax bill back to the Victorian government in a last-minute debt-cap extension approved by Treasurer Tim Pallas.
The merry-go-round of taxpayer money was revealed in a ministerial briefing in the days before the end of the 2023-24 financial year – obtained by the Victorian opposition under freedom-of-information laws and provided to The Sunday Age – in which Pallas allowed corporations to borrow almost $900 million extra in total.
Melbourne Water sought approval to take on more debt last year to make late land tax bill payments to the state.Credit: Brook Mitchell
Melbourne Water had asked for approval to borrow $55.3 million more than was forecast in the state budget only weeks earlier because its land tax bill had increased more than expected, as had the cost of land development capital costs.
“Melbourne Water efficiently manages and covers land tax expenses without issue,” executive general manager of corporate services Fiona Schutt said.
The government-owned corporation pays about $28 million a year in land tax to the state government.
The Age has previously revealed that Pallas in 2022-23 took a combined $214 million from four Melbourne-based water corporations – including Melbourne Water – in what is known as “capital repatriation”. That was on top of the dividends they paid to the government as a shareholder.
Treasurer Tim Pallas and Premier Jacinta Allan in May.Credit: Getty Images
The treasurer every June sets a cap on how much corporations can borrow for the coming financial year to ensure they remain financially stable and can offer affordable services. Corporations borrow through the Treasury Corporation of Victoria, which charges interest.
This means the water authority borrowed more money from a Victorian government entity, and paid interest to the government, to pay a tax to the same government. While the cap is in place, the corporation only draws on it if required.
In the ministerial briefing – signed on June 29 last year after post-budget submissions – Pallas increased the borrowing cap for government business enterprises by a combined $882.7 million, from $2.443 billion to $3.325 billion.
Most of this, worth $671.8 million, was for Development Victoria to progress projects such as athletes’ villages for the Commonwealth Games and to make strategic acquisitions.
The government cancelled the Games less than three weeks after the briefing was signed, but Development Victoria continues to work on planning and infrastructure for $2 billion worth of legacy projects and housing for the regions in the absence of the 2026 regional event.
Wannon Region Water Corporation also sought an extra $27 million to its borrowing limit last year because of delays in the Warrnambool Sewer Treatment Plant upgrade.
Separately, Pallas also approved North East Link State Tolling Corporation to increase its borrowing limit from $644.3 million to $2.35 billion for 2023-24. Revenue from the toll road – once the seriously over-budget project opens in 2028 – would be sufficient to cover the extra borrowing, the Department of Treasury and Finance wrote.
Opposition finance spokeswoman Jess Wilson said Labor could not manage money, which had real-world consequences for Victorians.
“After a decade of mismanagement under Labor, so many of Victoria’s public agencies are on the financial brink and increasingly reliant on greater debt and higher fees to remain operational,” Wilson said.
“The fact one of Victoria’s largest public water businesses has had to borrow money from the government simply to pay a state tax bill demonstrates just how dire Victoria’s finances have become under the Allan Labor government.”
Victoria’s net debt is forecast to reach $188 billion by 2028, leaving taxpayers with a daily interest bill of $26 million.
A state government spokeswoman said borrowings by corporations were driven by their capital expenditure decisions.
“The Victorian economy expanded by 9.1 per cent in the past two years, surpassing New South Wales, Queensland, Western Australia, and Tasmania, with Deloitte Access Economics forecasting Victoria will lead all other states in economic growth over the next five years.”
A second briefing from June last year shows Treasury charged a higher levy for its lending to maintain competitive neutrality after interest rate rises.
The government made $151.7 million in revenue from the levy in 2021-22, which is forecast to reach $187.9 million by 2026-27.
However, the document said the increased levy would make corporations that pay it less profitable, which results in lower dividends and income tax equivalents. “The net impact on the net result from transactions is therefore a net increase of $49.1 million over the budget and forward estimates.”
Twenty-six government business enterprises pay the levy, including 19 water corporations.
Melbourne Water is the supplier of wholesale water, sewerage, drainage and waterway management services for greater Melbourne. It provides its services to retailers such as Greater Western Water, South East Water and Yarra Valley Water, which bill households and businesses.
The Sunday Age revealed in April that regional water corporations – Wannon Water, Lower Murray Water, East Gippsland Water and Goulburn Valley Water – were so cash-strapped in 2022-23 they had to go back for permission to borrow more money, just as the financial year was coming to an end.
The regulator, the Essential Services Commission, has approved an increase in water prices from this year. In Melbourne, the average annual bill will rise by $34, and the average home in regional Victoria will face a $51 increase.
Melbourne households typically have lower water bills than in other Australian capitals.
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