Premier Daniel Andrews criticised for ‘trying to align himself with people with a mortgage’
The state government is under fire for trying to compare itself to a battling household duped by the Reserve Bank of Australia.
Victoria
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Economists have shot down the state government’s claims that the budget emergency can be blamed on Reserve Bank of Australia governor Philip Lowe.
Ahead of what is expected to be a horror state budget on Tuesday, AMP chief economist Shane Oliver said Victoria’s finances were not the same as those of homeowners caught out by interest-rate hikes.
“It probably is a bit disingenuous, he’s (Premier Daniel Andrews) trying to align himself with people with a mortgage,” he said.
“Ordinary Australians just heard ‘No rate hike until 2024’ (because) that’s how it was reported as summary.
“(As Premier) you would have had economists in your Treasury department going all over that. They would have told you, ‘Well, this is conditional on getting a slow recovery and low inflation’. Of course, we didn’t get that.
“That certainly wouldn’t have been the reason why a state government would take on more debt.”
Flagging that a major part of the budget would be a Covid debt recovery plan, Mr Andrews has sought to distinguish between the “credit card” debt of Covid support that needs to be paid quickly and the “mortgage” debt of major projects that grow the economy.
He and senior government figures have also tried to hand some responsibility to the Reserve Bank for suggesting that interest rates wouldn’t rise until 2024.
Earlier this month, Mr Andrews claimed the national cabinet was told in 2020 states needed to borrow money to avoid 25 per cent unemployment and that rates “won’t be going up”.
He indicated that his government would not have borrowed as much money as it did without this advice.
“The government of Victoria made decisions, but the advice that informed those decisions were very simple – you’ve got to borrow to get through,” he said. “So of course we went and borrowed.”
Health Minister Mary-Anne Thomas on Sunday repeated the claim.
“We did what we were advised to do by the RBA and other economic commentators,” she said.
But Dr Oliver said the RBA had tried to provide confidence to the economy after lockdowns. He disagreed that it was urging states to take on massive debt.
“I don’t think you’re going to find other state governments saying that,” he said.
“The states got the same advice. The federal government got the same advice. I don’t think any of them will be blaming the RBA.
“A state treasury should have known that it was not a guarantee. Anyone who read the fine print there would have seen what the RBA was saying was based on their expected economic outlook
“It wasn’t an iron-clad guarantee, it was just a forecast.
“A state treasury would have advised that the RBA were saying that but ‘We don’t really know, it could come earlier’. Many economists at the time were saying it (interest-rate rises) could come earlier.
“It’s a bit rich to then blame the RBA and continue to pile on debt because of them.”
Leading independent economist Saul Eslake said it was dishonest to blame the RBA given that borrowing had been rising “quite significantly” before Covid.
Victoria’s general government net debt had risen from just under 10 per cent of gross state product in 2013-14 to just 13 per cent in 2019-20. NSW’s had gone from 7.5 per cent to 7 per cent over the same period.
Both states have since recorded increases to fund their Covid responses, with Victoria’s debt now forecast to hit 24.6 per cent by 2026.
“The Victorian government might say that during that period the Reserve Bank governor was explicitly encouraging state governments to borrow money in order to invest more in infrastructure as a way of getting the economy moving,” Mr Eslake said.
“You might say … the Victorian government took that advice more seriously than other governments.
“You can spin a tale that has some substance in it, but you would still be left asking: Why did Victoria do a whole lot more of this than other state governments?”
Mr Eslake said the Andrews government was “entitled to feel aggrieved” that the RBA’s public guidance during Covid was “so wrong”.
“You’re still entitled to ask, well, all states heard the same message, why did Victoria go further than any other? Leaving itself more exposed? Their answer might be, ‘We had a tougher time with Covid’. Then you might say, well, that’s because you imposed a tougher time on yourself.”
Shadow treasurer Brad Rowswell said the Premier needed to accept the state’s budget position was a consequence of decisions he’d made.
“Mr Andrews has built a reputation on saying he takes responsibility for his actions,” he said.
“When it comes to the state of the Victorian economy, he is so desperate to blame everyone other than himself – whether that is Philip Lowe, the former federal government, or interest rates or Covid. The only thing that he should be looking to blame is himself and the decisions he’s made.”
Mr Rowswell said the Premier had misled Victorians during the last election by suggesting the state could “have it all”.
“Interest rates were at a record low. You don’t need to be an economist to figure out if something bottoms out, the only way is up,” he said.
Dr Oliver said the government was facing some of the toughest conditions since the early 1990s during the Cain and Kirner governments.
He said the state was caught between needing to bring down spending just as experts predicted a slowdown that would usually encourage politicians to inject money into the economy.
“We’re seeing challenges that governments haven’t had to deal with for many decades now,” Dr Oliver said.
“Most of the time, governments had to deal with trying to maintain steady growth but they didn’t have to worry about inflation and high interest rates. To try and grow your way out of debt, if we’re going into an economic downturn, it gets a lot harder.
“It is made doubly harder because high inflation has pushed up interest rates. It’s an incredibly challenging environment.
Dr Oliver said interest expenses were bearable if they stayed at 5 per cent of revenue, but could be a problem once they pushed past that level.
Victoria’s interest bill is expected to be at least 7 per cent of revenue by 2026.
Mr Eslake said Victoria and the Northern Territory had the weakest financial positions of any state or territory.
“That’s despite the fact that the pre-election outlook says that the government intends to keep growth in spending to just 0.4 per cent per annum,” he said. “If they can do that, that would be very good but Victoria does have a record of spending more than it foreshadows in its budget papers.”
But on Monday, Deputy Premier Jacinta Allan hit back at leading economists over the warning, saying the government was “simply stating the facts”.
“If you cast your mind back to 2020-21 where it was made very, very clear to governments around the country that there was the responsibility to support our communities through the one in 100 year pandemic,” she said.
“Governments around the country joined together through forums like National Cabinet where there was the obligation put forward to support communities, families and businesses through this unprecedented of times.
“This was the task and the decision that we took as a government.
“We have come through that time but there is still the task before us to look at how we bring down that investment that was made during that Covid period.”
Ms Allan would not put a price tag on the state’s current Covid debt, stating: “It would be presumptive today to provide a set of numbers that are simply going to be updated tomorrow.”
Asked if that meant that Victoria’s Covid debt was still growing, Ms Allan said: “No, and that would be disingenuous in the extreme to place those sort of assumptions.”
“I was simply referring to the fact that to put a number out there today when all the information is going to be made available tomorrow - it is 24 hours,” she added.
Ms Allan on Monday refused to rule out new or increased taxes - including changes to registration or licensing fees, in what is shaping up to be a horror state budget.
“We can continue to do this but I’m just not going to pre-empt tomorrow’s budget,” she said.
“I’m just not going to be drawn on any further speculation.
“The budget will be handed down in the usual way. It’s usually handed down on budget day, not the day before.”
Ms Allan insisted “hard working Victorian families doing it tough” will not be impacted.
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