Victoria has a whopping debt. Jacinta Allan is betting that nobody cares

Ready for some breaking news? Victoria has a stonking great debt.

Well, you could be forgiven for thinking it was breaking news. After all, it was splashed across the front pages of the Victorian and national newspapers, including this one, the morning after the state budget.

Along with a slouch of other journalists, economists and financial commentators, I put on my big-boy pants on Tuesday morning, took my seat in the budget lock-up and did my bit to report this in suitably grave terms.

Premier Jacinta Allan and Treasurer Jaclyn Symes.Credit: Joe Armao

Victoria has, of course, had a stonking great debt for several years now, so it is not news at all. The new out-year figure of $194 billion is a whopper, but so was last year’s and the year before.

Would you like to know the real news? Most Victorians don’t care. There are caveats to this, which I will get to, but government debt and deficit, in themselves, aren’t things we spend much time worrying about.

This year’s budget suggests the Allan government understands this in a way that economists, newspaper journalists and our editors don’t.

Premier Jacinta Allan knows that, so long as her government can credibly claim to still be providing the services and other things that people need, net debt is a very big number with very little meaning.

The evidence for this is laced throughout budget decisions and in the way both Allan and Treasurer Jaclyn Symes have sold them.

The morning after the budget, ABC broadcaster Raf Epstein asked Allan five times whether debt mattered. Her refusal to provide a direct answer fairly shouted it down the radio.

Symes freely admitted she could have banked some of the windfall gains Victoria received from larger than expected Commonwealth grants but instead decided to spend it. In post-fiscal Victoria, where red is the new black, a treasurer’s preference to spend rather than save is claimed as a virtue.

Independent economist Saul Eslake likens this to Symes flipping the bird to anyone concerned about Victoria’s financial situation. He also points out that Victoria posting an operating surplus is a meaningless milestone on what appears to be a very distant path to fiscal repair.

Before it can start paying down debt, the Victorian government must return the budget to cash surplus. This means, it must generate more revenue than the money it spends on both recurrent expenditure and capital investments. This is the measure the federal government uses when it declares a budget in surplus or deficit.

According to this measure, the Victorian Labor government has not delivered a proper surplus since its first budget handed down 11 years ago and there is no prospect it will deliver one in the forseeable future.

Tuesday’s budget forecasts that the government will finish the current financial year $19 billion short and the four years of the budget period will chalk up a further $38.5 billion in losses. This is why the debt is forecast to rise from $155.5 billion this year to $194 billion in 2028-29.

Before it can start paying down debt, the Victorian government must also be convinced this is something it actually needs to do. Why would they think this? They have run up debt to previously unimagined levels and won three elections along the way.

Like a recovering alcoholic in denial, the government has set out a five-step strategy for recovery but has no plans to stop drinking. The government reckons it can stay on the sauce and keep functioning as a reliable provider of public services.

Now for the caveats. The cost of Victoria’s debt is starting to bite. We can see this in delayed government commitments to delivering important services, like full funding of public schools under the Gonski reforms, and promised capital works.

We can see it in the weight of inefficient, state-based taxes layered onto business and property owners who pay more to operate in Victoria than they would in another state.

We can see it in the fast rising cost of interest. When the state’s annual interest bill reaches $10.6 billion in 2028-29, the government will be paying more to service debt than next year’s total $8.2 billion appropriations for the Department of Families, Fairness and Housing.

In other words, more public money will go to servicing debt than providing social services.

The flip side of this is Victoria will next year pay its interest bill and provide $18.9 billion to education and $17 billion for health and parents will no longer have to use their own money to top up their kids’ myki cards. On these measures, the joint hardly feels broke.

The clear message from this budget is that stonking great debt is now a permanent feature of Victoria’s finances and voters shouldn’t be at all bothered by this. The anodyne choice of title for the budget papers – “Focused on What Matters Most” – also gives license to look away from things that don’t.

The challenge for the Victorian opposition, and particularly shadow treasurer James Newbury, is to convince enough people that debt matters too. He will begin this argument next week when he delivers his budget reply speech and to win it, will require cogency not readily associated with the Victorian Liberal Party.

Newbury’s first task is to reconnect in voters’ minds the causal relationship between rising debt and taxes and the squeeze this ultimately places on government services. There is little to be gained from promising to fix something that people don’t think is a problem.

Chip Le Grand is state political editor.

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