Terry McCrann: The big risk with Victoria’s record spending

Who knew you could ring up a net debt of $155bn and people would barely blink an eye, writes Terry McCrann.

The Andrews Government is spending big, but people have barely noticed.

Daniel Andrews and Tim Pallas have gone for broke.

They are splashing money around – from public servants to big infrastructure projects to targeted tax cuts – in a way that would send their predecessors of the ‘Guilty Party’ era of 30 years ago green with envy.

Who knew you could ring up a net debt of $155bn – more than tripling in just four years and adding to over $23,000 for every Victorian – and almost literally nobody would blink an eye.

The once much-feared debt rating agency Moody’s merely noted the debt had “severely eroded the state’s FY2021 budgetary position, and weakened its capacity to pursue timely fiscal repair”.

It went on to comment that “borrowings will remain elevated for an extended period of time and significantly constrain Victoria’s operating profile over time”.

But there was no suggestion – at least, not yet – that Moody’s would actually downgrade Victoria’s treasured Triple-A rating, shared only with NSW among the states and also the federal government.

Right now, it’s doubtful that even a downgrade would cost the state government much in higher interest bills. Instead of being able to borrow at 1-1.5 per cent, it might have to pay a fraction more.

That’s a very different reality to the 18 per cent interest rates that the state government had to pay in the early 1990s.

Indeed, it’s almost ‘free money’ and guaranteed to stay that way for a few years with the Reserve Bank buying both Commonwealth and state bonds to keep their rates that low.

Now the spending – and the resultant debt – is a mix of three things.

It’s money that has to be spent and revenue that’s been lost because of the combined impacts of the costs of the virus, the lockdowns and the general recession across the state economy, the destroyed businesses and jobs.

It’s the spending binge on infrastructure to create jobs, business activity and hopefully future tax revenues.

Andrews and Pallas are doing exactly what both Reserve Bank governor Philip Lowe and the prime minister Scott Morrison are urging them to do – with Morrison giving Victoria $5bn to spur the Airport Rail Link.

It’s not just a ‘two-fer’ but indeed a ‘three-fer’ The economy gets a boost, Victorians get much-needed infrastructure; and it’s all done with (almost) ‘free money’.

What’s not to like?

Well, the one certainty we KNOW is that we will wake up in 2024 with – at least – that much debt.

By then the money might no longer be quite so free. We’ll have also built in a much higher level of everyday spending – many more public servants being paid higher salaries; the third element of the spending.

And there’s no sign of a Jeff Kennett waiting in the wings — right now, Andrews looks like ‘premier-for-life’. There’s also no longer a government-owned electricity industry able to be sold to pay off the debt.

We’re spending the money. We’ll have the infrastructure AND debt. Let’s hope the economy kicks in.

Originally published as Terry McCrann: The big risk with Victoria’s record spending