Vow to spare Victorian families COVID debt budget bill

Callum Godde |

Soaring net debt and interest repayments will be a major focus of the Victorian government.
Soaring net debt and interest repayments will be a major focus of the Victorian government.

Victorian families have been promised they will not be slugged with a multibillion dollar bill to pay off mounting debt ahead of an expected stripped-back 2023/24 state budget.

Plans to tackle soaring net debt and interest repayments are tipped to be at the heart of Victorian Treasurer Tim Pallas’ ninth state budget to be released on Tuesday.

Net debt is expected to rise to $165.9 billion by mid-2026, equating to 24.6 per cent of state revenue.

It was $21.8b when the Andrews Labor government came to office in late 2014 before rising to $40.3b, or 8.5 per cent of revenue, in mid-2019 ahead of the coronavirus pandemic.

Deputy Premier Jacinta Allan declared the budget would deliver on Labor’s 2022 election promises and pay down COVID-related debt, which is calculated by the treasury department to be at least $35.8b.

She vowed households would not have to foot the bill while doubling down on the government’s critique of the Reserve Bank of Australia for raising interest rates contrary to previous advice.

“This will not be something placed on hardworking families who’ve already gone through a really difficult 12 months with 11 interest rate rises,” she told reporters on Monday.

Bracing for cuts to the public service, Victorian Community and Public Sector Union secretary Karen Batt requested Ms Allan qualify or retract her comments, or alternatively apologise.

“The deputy premier has implied the public sector is either not being cut, or we’re not hardworking, or she reckons they don’t have families,” she told AAP.

“It’s sad the narrative is we borrowed to save jobs but now we’re cutting jobs to save borrowings.”

While the budget bottom line is not as dire as it was in the early 1990s under the Cain-Kirner Labor government, Victoria’s position is still the weakest of any state, independent economist Saul Eslake says.

“If you look at measures such as debt to gross product or interest as a proportion of revenue Victoria’s is the most onerous of any of the states,” he told AAP.

The Andrews government must slow the debt growth to ensure Victoria is not exposed to further interest hikes, he said, with the state projected to be on the hook for roughly $20 million a day in interest repayments within three years.

Mr Eslake said Labor could either opt to reduce spending and in turn compromise service and infrastructure delivery, or raise revenue through levies and taxes.

“This is the most propitious time in the electoral cycle to make politically difficult and unpleasant decisions,” Mr Eslake said.

It could also push back the start date for projects including jointly funded initiatives such as Geelong Fast Rail and Melbourne Airport Rail. 

John Manning from credit ratings agency Moody’s said there was no specific trigger for a change to Victoria’s AA2 rating but a rebalancing of its major infrastructure profile would be favourable.

“How the timing of these occur will be a significant driver of the debt burden … because the infrastructure projects are debt-funded,” the lead analyst told AAP.

Premier Daniel Andrews this month criticised the reserve bank for providing advice to national cabinet early in the pandemic that interest rates would not rise, encouraging borrowing to curb unemployment.

Mr Eslake said it was not unreasonable for government to cast those aspersions but it was not the complete story as Victoria still decided to run bigger deficits and borrow more when it was hit hardest by COVID-19.

“Some of that was bad luck but some of that was a consequence of decisions by the Andrews government on how to manage it,” he said.

Shadow treasurer Brad Rowswell said the Andrews government’s debt narrative was a myth.

“We know that the Labor government blame anyone or anything that they can,” he said.