The Victorian government’s $3.8bn overhaul of the mental health system was the centrepiece of Thursday’s state budget, but business groups have criticised the decision to cover part of the ongoing cost of the reforms by imposing a new tax on big business.
Here’s what you need to know.
How much is the levy, and who pays it?
The mental health and wellbeing levy was a recommendation of the Victorian royal commission on mental health. It’s due to kick in on 1 January, 2022, and is intended to raise $2.9bn over the next four years: $386.7m next financial year rising to more than $800m per year thereafter.
The budget papers describe it as a “new revenue mechanism for the provision of operational funding for mental health services”. It will be implemented as a payroll tax surcharge on wages paid in Victoria on businesses with a national payroll of more than $10m per year. The surcharge on businesses with a national payroll of between $10m and $100m is 0.5% on top of existing payroll tax in Victoria, and 1% for businesses with a national payroll of more than $100m.
The levy was introduced to parliament as part of the state taxation act after the budget was read on Thursday, and will be ring-fenced by legislation for spending on mental health services only.
Introducing a levy to provide operational funding for mental health services was an interim recommendation of the royal commission into Victorian mental health services, which handed down its final report earlier this year. The final report says that the levy and a dedicated capital investment fund “will be critical to ensuring sustainable and enduring reform” and warns that if they are delayed, “the commission expects the Victorian government to demonstrate its commitment by allocating investment from general revenue as part of the annual budget process”.
The Andrews government has committed to implementing all of the recommendations.
Why is big business being made to pay for the mental health levy?
Victorian treasurer Tim Pallas has framed the levy as payback for jobkeeper and other government subsidies – without naming any subsidies in particular.
Many big businesses have continued to profit through the pandemic – “pocketing taxpayer subsidies along the way,” he said in his budget speech on Thursday. “We’re asking those businesses to help deliver a generational reform, after one of the most mentally taxing years of our lives.”
Pallas said the levy would affect less than 5% of employers in Australia. When pushed on his decision in a press conference during budget lockup, he said it was “not only appropriate but fair that big business makes a substantial contribution”.
He said that treasury adopted the royal commission’s modelling, which found that poor mental health cost Victoria $14.2bn per year, including a direct cost to employers of $1.9bn per year from lost productivity and workplace injuries. The financial justification from the government is that “the cost of not fixing [the mental health system] is far greater”.
Pallas also challenged crossbenchers in the legislative council to support the levy, telling reporters that while he “won’t preempt the upper house”, anyone who listened to the evidence before the royal commission “would know that we have a crisis in the mental health system. I will simply appeal to their sense of fairness and reason.”
The opposition leader, Michael O’Brien, said he would lobby the crossbench to vote against the levy. “You don’t help mental health by taxing people out of a job,” he said.
The new levy has also been criticised by the federal treasurer, Josh Frydenberg. The federal budget unveiled last week included $2.3bn in mental health spending – significantly below the Victorian commitment.
What are businesses saying?
The business lobby is, unsurprisingly, not supportive of the new levy. Business Council chief executive Jennifer Westacott said it set a “very dangerous precedent of fiscal repair which ultimately harms growth”.
“While we welcome mental health reform, which is much needed to deal with systemic issues and the devastating impact of a long and disproportionate lockdown, an approach that pits some Victorians against others by taxing jobs makes everyone a loser,” she said.
The Victorian Chamber of Commerce and Industry said it welcomed the mental health reforms but was “disappointed that the government will hike up taxes for business and investors to fund core responsibilities”.
Among the high profile names to oppose the levy are Harvey Norman owner Gerry Harvey, who told the Age it was a “dreadful, horrible, stupid tax”.
Harvey Norman has not handed back the $22m it received in jobkeeper payments after its profits doubled during the pandemic.
Restaurateur Chris Lucas, owner of the Chin Chin restaurant group, said the levy was a “kick in the guts” and said the government should look for the funding in its own cost base, including the public sector wage bill.
Public sector wages were capped in the budget, with a reduction in the annual guaranteed increase for all public sector employees from 2% to 1.5%.
What is the mental health sector saying?
Maggie Toko, who helmed the Victorian Mental Illness Awareness Council during the royal commission, said imposing the levy on big business was “a great idea”.
“Big business might not be happy with it, but in actual fact it targets the core of mums and dads whose children or who themselves experience [poor] mental health, and they now don’t have to put their hand in their pocket to pay for it,” she told the ABC. “It means going forward that we will have true reform that will last.”
Former Australian of the year Prof Patrick McGorry said it made economic sense to fund better mental health services.
“These are people in the prime of life,” he said. “If you save their life and help them to recover and flourish they’ll pay you back several times over. They’ll pay taxes, they won’t be on benefits, they will actually have a fulfilling life. You get the human benefit and the social benefit of a stronger healthy society but you also get an economic benefit.”
The Victorian Council of Social Services CEO, Emma King, said support for mental health “should be above politics” and urged all political parties to “be constructive and supportive to this approach”.
“If people want the government to fund services properly then it needs to raise revenue,” she said.
“A levy is the method recommended by the royal commission. Designed properly and applied fairly, this levy will play a critical role raising the money required to fix our broken mental health system.”
Jill Gallagher, the chief executive of the Victorian Aboriginal Community Controlled Health Organisation, said the $3.8bn mental health spend, which includes $116m directed toward First Nations people, will make “a significant difference” and create job opportunities.
