Victoria braces for unprecedented economic test as net debt triples

Victoria’s net debt is expected to triple to an eye-watering $150bn.

Net debt in Victoria is expected to triple.

The Victorian government is bracing for an unprecedented economic test with net debt expected to soar past $150bn.

New forecasts expect a $154.8bn debt by 2023-24, triple the current level.

The government is also expecting an operating deficit of $23.3bn in 2020-21, with net debt rising to $86bn.

It comes as the government is to unveil an average $19.6bn in infrastructure investment over the budget and forward estimates, and a tax for drivers of zero and low-emission light vehicles in lieu of fuel excise.

Deficits are projected to reduce over the forward estimates to $13.1bn in 2021-22, then to $6.7bn in 2022-23.

Government data show revenue has dropped 11.9 per cent while unemployment fell 182,800 between the March and September quarters. Economic output is forecast to fall 4.0 per cent this financial year.

The state government said it was also hit by a redistribution of GST that equalled a $1bn a year loss across the budget and forward estimates.

Treasurer Tim Pallas said the government was following a blueprint urged by both the federal Treasury and the Reserve Bank.

While the debt level was unprecedented in absolute terms, it was not when considered as a percentage of the economy.

Mr Pallas said interest expense as a share of total revenue remained at a manage­able 4.4 per cent of revenue per year over forward estimates.

With record low interest rates, manageable borrowing rises were one of the fastest ways to support people, stimulate the economy and create jobs. “We’re using the strength of our balance sheet to repair the hardship caused by coronavirus on families, workers and businesses,” he said.

“We’re following the blueprint of jurisdictions around Australia, and the world, who are using their own budgets to protect household and business budgets. We can’t fix the economy until we’ve addressed the public health crisis. We’re now in a better position than so many jurisdictions around the world and our economy can return to a position of growth — this budget gives it the kickstart it needs.”

Opposition treasury spokeswoman Louise Staley said Victoria was enduring its worst economic crisis in almost 30 years. “For the first time in nearly 30 years, our economy has shrunk and today’s figures show this started well before COVID-19 reared its ugly head,” she said.

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