Valencia have finished third in the last two campaigns behind the big two, but were not within 20 points of second-placed Madrid on either occasion.
Los Che have also lost key trio David Silva, David Villa and Juan Mata over the last 18 months, but they have started the new season in good form, winning their opening three matches before playing out a 2-2 draw with Barca at the Mestalla on Wednesday night.
Benitez watched that game and the Spaniard, who coached Valencia between 2001-04 and led them to two La Liga titles, was impressed with what he saw from Unai Emery's men.
"After seeing the game against Barcelona I have no doubt that Valencia can compete with the best. Unai is doing a great job and I think that they could reach the level of the teams who have bigger budgets. We will have to see, but they are taking the steps," said Benitez in Marca.
Valencia's title success under Benitez in 2004 was the last time a team other than Barca or Madrid have been crowned champions in Spain.