MELBOURNE, AAP – Victorian Treasurer Tim Pallas is expected to spend billions of dollars rebuilding the state’s mental health system in his seventh budget.

The 2021/22 budget, to be unveiled on Thursday, is expected to act on the recommendations of the mental health royal commission, which released its final report in March this year.

The report found Victoria’s mental health system largely operated in crisis mode, had “catastrophically failed” to live up to expectations and was “woefully unprepared” for current and future challenges.

On budget eve, Health Minister Martin Foley told reporters the government was committed to fully implementing all the inquiry’s recommendations, including a new levy or tax to help fund mental health services.

“We know that the royal commission into Victoria’s mental health system pointed to a broken system, it pointed to a system that is at the moment costing communities and individuals and families huge amounts of trauma for bad responses that in many respects are getting worse,” he said on Wednesday.

“The royal commission into Victoria’s mental health system recommended a dedicated funding stream.

“I’m sure that the treasurer and acting premier and mental health minister will have more to say about mental health as a key pillar of tomorrow’s budget.”

Early on Thursday, Acting Premier James Merlino announced $1.6 billion to build 13 new schools and improve existing ones.

Twelve schools are expected to open in 2023 and one in 2024, while land will be acquired in Cardinia, Casey, Hume, Melton, Mitchell, Port Phillip and Wyndham for future school sites.

“By investing in our schools, we’re investing in our kids – and our state’s recovery. This Budget is, quite literally, building our future,” Mr Merlino said in a statement.

The Age reports the budget will include an $11.6 billion deficit in the 2021/22 financial year, down from $13.1 billion.

The government has already announced $986 million to build 25 brand-new X’Trapolis 2.0 trains, $759 million to help paramedics and hospitals cope with “unprecedented levels of demand” post-COVID and $500 million for social and affordable housing.

Some $349.6 million will go towards upgrading Thomas Embling Hospital, which predominantly treats people found not guilty of crimes on the grounds of mental impairment.

The works at the Fairfield facility will include a new dedicated 34-bed women’s precinct and a 48-bed medium-security men’s facility, as well as clinical administration facilities.

The royal commission called for the state to refurbish the existing beds and expand the hospital by 107 beds.

To begin the repair job on Victoria’s COVID-battered finances, Mr Pallas has announced $2.7 billion in new taxes on the state’s richest property owners.

Measures include a windfall gains tax on property developers, removing land concession on men-only exclusive clubs, increased land tax and increased stamp duty on properties above $2 million.

Mr Pallas also confirmed the guaranteed annual increase of public sector jobs will be cut from 3 per cent to 2 per cent from 2022.