Pallas forced to cut spending and raise taxes, if he wants to make a dent in the budget

A toxic mix of soaring debt and rising interest rates is set to see the Andrews government make some brutal cost-cutting decisions, that will hurt Victorians.

Sources say Treasurer Tim Pallas will have to cut funding to grassroots organisations and jobs to make Budget savings. Picture: Luis Ascui

Since coming to power in 2014 the Andrews government has sat back and watched our debt level grow.

For much of its time in office, this has not worried people like it once did.

With money cheap, it’s been easy for governments to borrow, and kick the problem of repaying debt down the road.

It’s bankrolled Daniel Andrews’ massive infrastructure agenda, which has translated to holes in the ground, lots of building and lots of jobs.

Even with billions of dollars in cost blow outs, there has been a public indifference to state debt.

Never mind the fact the $22bn debt inherited by the government in 2014-15 is on track to peak at almost $166bn by 2025-26.

But along the way there have been repeated warnings that when interest rates start going up again, the strain will be overbearing.

You only have to go back to the 1980s and ‘90s to be reminded of how much trouble Victoria found itself in when both debt levels and interest rates were high.

And so here we are, with the toxic mix of soaring debt and rising interest rates.

The government has long argued that investing in Victoria, through infrastructure, health and skills, will ultimately lead an economic recovery.

Victorian Treasurer Tim Pallas with Premier Daniel Andrews. Picture: Nicki Connolly

But it’s a long game.

As it is, we are now paying $10m each and every single day in interest payments alone.

That figure will only grow.

It’s money that could be spent in any manner of ways.

It would buy 52 ambulances, a breast cancer centre, a fire station or 200 or so Victoria Police recruits.

That’s daily. There are only three quick-fix ways to lower our debt: cut spending, raise taxes or sell assets.

With little left to sell, treasurer Tim Pallas is in the unenviable position of being forced to cut spending, and raise taxes, if he wants to make a dent in the budget.

Sources insist he’s planning to do both.

As well as every government department being told to find savings, grassroots organisations will have funding slashed.

Public servants will feel the pinch too, with the government keen to drive down its eye-watering $38bn wages bill — more than $14bn more every year than when it came to office.

After so many years of government debt having little to nil tangible impact on our lives, the feared cut in service delivery will hit hard.

We won’t know for sure until May when the treasurer hands down his ninth budget.

But the government has been tempering expectations in recent weeks, warning that what’s to come won’t be pretty.