After a decade of Labor government, Victoria is a ‘poor state’ economic experts say

Victoria this week marks a decade of Labor rule. The Herald Sun has asked a number of economic experts to analyse the health of the state’s ecnomy — and the verdict is grim.

After a decade of Labor government, Victoria is now a “poor state” with the only option for recovery slowing the Big Build pipeline.

That’s the view of economic experts asked by the Herald Sun to analyse Labor’s management of the economy since coming to office on November 29, 2014 – 10 years ago on Friday.

During that period, debt has soared to record levels while the government’s tax take has more than doubled from $16.3bn to $36.3bn.

Government wages have blown out from $18.9bn to $36.7bn and debt per capita has more than tripled.

Net debt was forecast in May’s state budget to reach $187.8bn by 2027-28.

That’s 22 per cent of Victoria’s gross state product, well above the average of 11.2 per cent for the other states and territories.

But the government’s latest quarterly update, released in mid-November, revealed debt was soaring at an even faster rate than expected just a few months ago – rising by an incredible $80m a day.

And in a scathing report released on Friday, the Auditor-General’s Office warned the huge bill could have a long-term impact on taxpayers and service delivery, saying the government had no plausible long-term plan to bring the debt down.

Independent economist Saul Eslake said that Victoria has become a “poor state”. Picture: Chris Kidd

Up, up and away: Victoria's debt under Labor.

Independent economist Saul Eslake said that Victoria has performed significantly worse on the economy than other states since Labor came to office.

“Victoria has become a poor state over the past 10 years,” he said.

“At least compared with the rest of Australia, Victoria is worse off in most respects than it was in 2014.”

The state’s per capita gross state product fell from 91.5 per cent of the national average in 2013-14 to 88.5 per cent in 2023-24, ahead of only South Australia and Tasmania, and well behind NSW at 98.2 per cent.

Its per capita household disposable income fell from 92.4 per cent of the national average in 2013-14 to 90 per cent in 2023-24, ahead of only South Australia, and behind even Tasmania.

At the same time, NSW improved its position from 100.3 per cent of the national average to 105.6 per cent over the same period.

Real gross state income per capita grew at an average annual rate of 0.9 per cent, the third worst in the country.

“Between 1999-2000 and 2013-14 Victoria’s general government sector ran cash deficits averaging just 0.5 per cent of gross state product, roughly in line with the average of all states and territories,” Mr Eslake said.

“Since 2014-15 it has run deficits averaging 1.9 per cent of gross state product, as against an average of 1 per cent of gross state product for all states and territories.”

Treasurer Tim Pallas defended the state’s economic position. Picture: Aaron Francis

Treasurer Tim Pallas has emphatically defended the state’s economic position.

Mr Pallas points to economic growth, the largest business growth of any state since coming to government and a decline in the unemployment rate to 4.5 per cent.

The government has long blamed Covid for its economic problems, but Victoria’s budget first went into deficit by almost $1bn in 2019, well before the pandemic, and experts say the primary factor is an overambitious infrastructure program while a ballooning wage bill is also key.

“The facts are the facts – the Victorian economy is booming because of the Labor government’s state-shaping investments in infrastructure and services,” he said.

“Victoria has the strongest employment growth in all of the states in absolute and percentage terms with almost 885,000 jobs created since we were elected.

“We have added more than 100,000 businesses since June 2020, the largest percentage growth of any state.”

Mr Pallas also points to a raft of cost-saving policies including energy saving measures, free registration for apprentices, free Kinder, capped V/Line fares, stamp duty exemptions and the School Savings Bonus, to insist the state’s economic position is not impacting the government’s work.

But that view is not widely held.

Last week’s Victorian Auditor General’s Office report slammed the government’s

“reactive” approach to financial management, which it concluded was failing to address the emerging risks.

The state’s infrastructure spend needs to be brought under control, economists said. Picture: David Crosling

Victorian Chamber of Commerce and Industry chief Paul Guerra said there was a very negative sentiment towards Victoria within the business community.

Mr Guerra has long called for a federal rescue package to fast-track Victoria’s recovery.

“I think it’s unavoidable the federal government needs to be asked for help,” he said.

“All that’s happening at the moment is Victorian businesses are being penalised through the repayment of that debt.”

Mr Guerra has argued a low-interest rate loan could save the Victorian government billions of dollars a year which could be used to drive the economy.

“With the debt ceiling pretty much being breached, it limits the choice of how the government is going to support the Victorian community.”

Australian Industry Group chief Innes Willox also believes a federal bailout is now unavoidable.

But while credit ratings agencies remain seriously concerned about debt levels, they have stopped short of backing calls for federal intervention.

Initial costings on the SRL are likely no longer relevant and had likely tripled, Mr Manning said.

John Manning, vice president and senior credit officer at Moody’s Ratings, said such a move would only serve as a bandaid approach.

Mr Manning said curbing the state’s infrastructure spend was vital.

“The most effective way of containing the rising debt burden of Victoria is managing or reprofiling or resequencing the state’s debt-funded infrastructure spending,” he said.

“That’s where the most immediate impact will flow through.

“With major projects like the Suburban Rail Loop still supported by the new Premier, it’s unclear when that debt-funded spending is going to start to moderate at a level that sees debt not only moderate, but reduce.”

Mr Manning said the full scope of the SRL was still not clear, but initial costings were no longer relevant and had likely tripled.

S&P downgraded the state’s rating to AA from AAA in December 2020 following the significant financial hit the state took from the pandemic and the state’s prolonged lockdowns.

Anthony Walker, an analyst at S&P Global Ratings, said Victoria’s debt levels had quadrupled since Labor’s first budget in 2015.

“The key driver of this was the pandemic and Victoria’s Big Build,” he said.

“Infrastructure spending will ensure debt will continue to rise.”

Debt has risen to about $27,000 per Victorian from $7700 when Labor took power.

Mr Walker said despite that debt, the economy remained wealthy in a global context with high GSP per capita but warned the sharp rise in taxes since the pandemic would likely weaken Victoria’s growth prospects.

Premier Jacinta Allan defended the state’s economic position on Monday. Picture: Valeriu Campan

Shadow treasurer Brad Rowswell slammed Labor’s record as one of gross incompetence.

“After 10 years of Labor, Victoria has the highest debt, highest taxes, highest business taxes, highest property taxes, highest unemployment and worst credit rating of any state in Australia,” he said.

“Labor’s increased taxes and financial mismanagement over the last 10 years is hitting families, singles, older Victorians, renters, businesses, housing affordability, road maintenance, schools and health services.

“Over the last 10 years, Victorian Labor have demonstrated that they simply cannot manage money and hardworking Victorians are paying the price.”

On Monday, Premier Jacinta Allan insisted the Victorian economy was “strong”.

“Our economy is growing — it’s forecast by Deloitte to be the fastest growing economy over the coming five year period, and this is underpinned by our fiscal strategy that has been outlined at budget time,” she said.

“Our focus on jobs and growing a productive economy through building for the future, building transport, building renewable energy and building more homes is underpinning that economic growth.”

Ms Allan also defended the Big Build spend.

“Investing in productive transport infrastructure is so vitally important — supporting jobs now, but also supporting our city and state in the future,” she said.

“Just like you can’t imagine Melbourne today without the city loop, in decades to come people who oppose the Metro tunnel, oppose the SRL – like we saw the Liberal Party do time and time again – they’ll be proven so badly wrong because of the difference those projects are going to make.”