Shannon Deery: Creative hand masks Victoria’s horror budget blues

As a horror budget looms and concern mounts about Victoria’s ability to get on top of its economic situation, the Andrews government is all about saying the right things.

With Victoria hurtling towards record debt levels, get ready to witness some political sleight-of-hand at next week’s state budget.

The luxury of a first budget after an election is that it need not appeal to the masses.

The government is riding high off a third successive election win, and despite a falling primary vote, that there is no real alternative government means it enjoys a comfortable amount of wriggle room.

In that sense, it can afford the looming horror budget safe in the knowledge it still has three years to turn the state’s finances around before Victorians are again asked to cast their votes in 2026.

Whether or not it can do that is another matter, but theoretically there is time.

In recent weeks, Daniel Andrews has made it clear Victorians won’t like the budget. It will be like no budget his government has ever handed down before, he has warned, and despite the tough ride already being faced by Victorians, there is more pain ahead.

Premier Daniel Andrews has truly tested the tough love model. Picture: Nicki Connolly

“We have to pay back that Covid debt … it can’t be done in one year, but it has to be done,” he said last week.

“We borrowed money, an enormous amount of money, we had to, to save jobs and to save lives.

“And just as there was really no option but to get that money then, there’s no option but to pay it back, and that’s exactly what we’re going to lay down and plan to do.

“That will mean there’s some pain, not everybody will like that, but that’s what has to be done.”

This tough love model is one that Andrews has well and truly tested.

Throughout the Covid pandemic he became adept at delivering us the bad news for our own good.

Many didn’t like it, but most respected the Premier for making the unpopular decisions.

But the budget messaging is now intended solely to protect political capital. More importantly, it is a message to ratings agencies, who will get to cast their votes on the government well ahead of 2026.

Since Victoria’s AAA rating was downgraded by Moody’s, and S&P Global, in late 2020, the agencies have been watching closely.

Throughout the Covid pandemic Daniel Andrews became adept at delivering us the bad news for our own good. Picture: Ian Currie

More than any other state there is a concern about Victoria’s ability to get on top of its economic situation.

At AA, we also have the lowest rating of any state.

Victoria’s $116bn debt is larger than any other state, and on track to hit $165bn by 2025-26. The government pumped more than $44bn into the Victorian economy to respond to the pandemic and keep workers in jobs and businesses afloat. It provided rent relief, support payments, and direct financial support.

Soaring inflation, rising interest rates, major project blowouts and ballooning government expenses have also had a damning effect on our economic situation. As has a weaker-than-expected housing market which will see lower transfer duty revenue than originally budgeted in 2023.

Moody’s expects this to largely offset any potential benefits from stronger GST collection and payroll tax revenue. And it expects softer-than-expected residential prices and transactional activity to continue to impact Victoria throughout 2024.

Government sources say Victoria’s debt will increase in next week’s budget despite efforts to desperately rein in spending. Funding is set to be slashed not only to transport infrastructure, but to critical community health programs.

Thousands of jobs could be cut across the public service, which has almost doubled in terms of its wages bill under the Andrews government.

This alone could have a serious impact on service delivery, and that’s without heavy budget cuts across key agencies. What is concerning the ratings agencies is the willingness of governments to get things back in control.

Funding is set to be slashed not only to transport infrastructure, but to critical community health programs. Picture: David Crosling

“Budget repair discipline has waned a little, in our view,” S & P analyst Martin Foo warned earlier this year. “This appears in part due to the timing of state elections, in Victoria in November 2022 and NSW in March 2023 … ratings could be at risk if expenditure control deteriorates, which would signal weakening financial management.”

It’s for precisely this reason we will see some sleight-of-hand in next week’s budget.

Sources familiar with the budget say trickery is too strong a word.

But all efforts are being made to impress upon ratings agencies that Victoria is taking more than a leisurely approach to fiscal repair.

Which is why it will be all about the government saying the right things.

And perhaps kicking certain expenditure down the road in the hope that the economy turns around in coming years.

While it may have garnered a reputation for getting things done, the Andrews government does not enjoy a perception that it does so with any great sense of financial responsibility.

Victoria must show a credible path back, or it will cop another whack from the ratings agencies.

A further fall from our AA rating would cement a fiscal reckless legacy for the Andrews government and impact interest rates and the state’s borrowing power.

Given we are already paying $10m a day in interest payments alone, that’s a risk Andrews cannot take.

Shannon Deery is State Politics Editor