Editorial
Victoria is driving towards a debt cliff. Here’s one way to hit the brakes
It is easy for Victorians long familiar with talk of the state’s mountainous debt to hear the government speak of “fiscal discipline” and switch off with eyes glazed over.
After all, the Labor government showed an apparent indifference to escalating debt under Daniel Andrews’ leadership for much of the past decade, even as the state’s debt grew to the nation’s largest. Victorians can be forgiven for believing it didn’t really matter to the government.
Treasurer Tim Pallas delivers the Victorian budget in parliament on Tuesday.Credit: Getty
Eventually, though, reality had to bite. And bite it did on Tuesday when Treasurer Tim Pallas delivered his 10th budget with projections that Victoria’s debt would rise markedly from $135.9 billion this year to $187.8 billion by mid-2028, and comprising the equivalent of more than one-quarter of the state’s economy.
The 2024-25 budget – the first under Premier Jacinta Allan, who succeeded Andrews in September – demonstrated in real terms to Victorians why debt matters. When $25 million a day is projected to fly out the door in interest payments alone, it’s clear that something’s got to give.
The profligate approach to funding major transport projects under Andrews has driven the government to a fiscal cliff. Now, like Thelma and Louise, the new premier and a veteran treasurer face a choice between pulling over the car or driving ahead and over the precipice.
Last week Pallas insisted the government had “never tried to sugarcoat this budget”.
But its “helping families” sales pitch on Tuesday – complete with a ubiquitous image of a smiling schoolgirl – was pushed into stark relief by the impact of the state’s debt burden on families.
Labor’s plan to offer $400 to the families of all public and some private school students to help with start-of-year expenses – available to wealthy families as well as those struggling – appears better suited to political chicanery than providing targeted cost-of-living relief to those most in need.
There are plenty more developments for families to consider:
- Children in some parts of Victoria will not get the free childcare they were promised, due to a decision to delay the program. The move was attributed to worker shortages.
- A shared equity program designed to help aspiring first home buyers enter a prohibitive housing market will be cut off in a year.
- Casual workers and those on insecure arrangements will no longer receive sick pay when they are unwell after the government’s two-year pilot program, which began in 2022, is scrapped.
- The construction of three new community hospitals, in Eltham, Emerald and Torquay that were promised in 2019, is in doubt, as the government has placed the plan under review.
- Don’t bother waiting for a train to Melbourne Airport. It’s not coming any time soon after Pallas conceded on Tuesday the government needed to be “realistic” about the timeline for the Airport Rail. He said the project, which was planned to open in 2029, would be delayed for at least four years.
- Dumping rubbish will cost Victorians an extra half a billion dollars over three years under an increase to the state’s waste levy.
- Ratepayers can expect to hand over an extra $591 million over the next four years under an expansion of the fire services property levy.
Even with all of this, debt continues to rise at a pace faster than Pallas predicted in December. Then, the burden was expected to hit $177.8 billion by 2027, but that figure has been revised to $179.2 billion.
If reducing the debt seems to be an insurmountable challenge, it at least is one that, finally, the government has acknowledged.
On Tuesday, for the first time, Pallas included “reduction of net debt to gross state product” as the fifth plank of the Allan government’s fiscal strategy, which previously ended at step four – “stabilising debt levels”. While that is a welcome acknowledgement, it has been a long time coming.
On this, the government can claim to be heading in the right direction, albeit by the finest of margins and helped by a generous allocation of GST revenue from the federal government. Net debt as a proportion of the economy is projected to edge down for the first time in years when it moves from 25.2 per cent in 2027 to 25.1 per cent in 2028.
Pallas rightly insists that the “fiscal discipline” in achieving this shift must not come at the expense of jobs and economic growth, and that the nexus between debt reduction and government spending is a tight balancing act.
But the success he claims in countering the debt curve is wafer thin and fragile, and The Age believes there is more the government can do to improve the state’s financial position.
The move in this budget to slow the pace of infrastructure projects is necessary and prudent, but it does not include a measure that could deliver a more significant and longer-lasting benefit to the state’s bottom line. Delaying building the Suburban Rail Loop until the state has a greater capacity to pay for such an enormous project has the potential to save Victorians billions of dollars and buttress the state against unexpected ills.
The Age acknowledges the project will help future-proof Victorian society as the state’s population heads towards 10 million people by 2050. But it should not come by shackling future generations with an ever-increasing burden of debt.
Why does that matter? As Pallas said yesterday: “The biggest gift to the future is building a functioning economy.”
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