Andrews govt’s Covid lockdowns to blame for Victoria’s dire finances

Victoria’s Covid lockdowns are to blame for the state going broke, a leading credit ratings agency says, and Treasurer Tim Pallas is now being urged to make some “difficult decisions”.

A leading credit ratings agency says Victoria’s world-record Covid lockdowns are to blame for the state’s dire financial position.

Just days after the Herald Sun revealed a warning by Standard & Poors that Victoria risked a further ratings downgrade if it couldn’t contain cost on controversial Suburuban Rail Loop, the agency’s director of government ratings, Anthony Walker, has doubled down on that warning, urging treasurer Tim Pallas to make some “difficult decisions”.

Mr Walker said there was no question the government’s handling of the Covid-19 pandemic had contributed to Victoria’s dire financial position.

“It was only five or six years ago when Victoria had the best financial outcomes, and that was before Covid,” he said.

“Definitely the prolonged lockdowns and the number of lockdowns during Covid were the key that drove this.

“What we’re seeing now is that most other states around the world have recovered from Covid financially. Australian states, not just Victoria, are lagging.

“There was a kind of a view (in Victoria) ... that the government didn’t really care about the financial, economic costs.

“They just wanted to get the health outcomes Correct. Well, that came at a massive fiscal shock, and they’re still trying to recover from that.”

Before Covid, Victoria had the best financial outcomes. Picture: Wayne Taylor

If the government can’t contain spending, it would almost inevitably lead to a rating downgrade to a record low AA- — three notches down from AAA in 2020 — and would mean increased borrowing costs of between 0.1 per cent and 0.5 per cent at a time when the state’s debt is ballooning.

“At some stage very, very difficult decisions need to be made when it comes to what they’re spending money on,” Mr Walker said.

“Are they going to keep funding a lot of social welfare programs or social programs, are they going to start cutting budgets, or do they just start reducing capital spending.”

Mr Walker said he had serious concerns that the government had underestimated the cost of building the first stage of the SRL, currently budgeted at $30-34.5bn, and warned a blowout would risk a credit downgrade.

Mr Walker says there’s no question the government’s handling of the Covid pandemic contributed to Victoria’s dire financial position. Picture: Wayne Taylor

“The Treasurer is very aware of our views. They know where the limits are between now and another downgrade,” he said.

“He does have a bit of a fight on his hands when it comes to line ministers and people wanting to increase spending elsewhere.

“There is an understanding from the Treasury, where we’re coming from.”

The government is facing calls to make public a secret credit report commissioned by treasurer Tim Pallas in April 2022 from global credit rating agency, Fitch.

Shadow treasurer Brad Rowswell said the private assessment raised questions given Victoria had longstanding arrangements with two agencies — Standard & Poors and Moody’s — to provide official credit ratings for the state.

Treasurer Tim Pallas is being urged to make some ‘difficult decisions’. Picture: Luis Enrique Ascui

“With Victorians set to pay $1m an hour in interest on Labor’s record debt, taxpayers deserve to know exactly what is in this secret credit rating,” he said.

“Instead of getting a third opinion about the dire state of Victoria’s finances, Labor should stop the blowouts and start treating Victorians’ money with respect.

“Labor cannot manage money and Victorians are paying the price.”

It comes days after the Herald Sun revealed a warning by S&P that Victoria was at risk of a record low credit rating if it pushed ahead with the Suburban Rail Loop.

S&P downgraded Victoria an unprecedented two notches to AA, from AAA, in December 2020.

If S&P lowered the credit rating from AA to A Victoria would face increased borrowing costs of between 0.1 per cent and 0.5 per cent.

A government spokesman on Monday refused to comment on the credit assessment, claiming commercial-in-confidence.

“Our fiscal strategy is strengthening the economy and providing opportunities for Victorians, with more jobs created in Victoria than any other state since we came to government,” he said.

“Deloitte Access Economics data forecasts that Victoria will lead the nation in economic growth over the next five years.”

Originally published as Andrews govt’s Covid lockdowns to blame for Victoria’s dire finances