Victoria Treasury reveals it has not modelled the impact of a credit rating downgrade

Victoria has been warned its credit rating — a key metric which influences the government’s borrowing costs — is at risk of another downgrade. The state’s treasury has just revealed it hasn’t done any research on the impact of such a blow.

Victorian treasury officials have conceded they have done no modelling on the impact of a credit downgrade on the state’s economy.

In a staggering admission to parliament, Department of Treasury and Finance secretary Chris Barrett said the threat of a downgrade was not considered in this month’s budget.

“The five step fiscal strategy is aimed at retaining the current credit rating and improving it over time,” Mr Barrett told the Public Accounts and Estimates Committee on Tuesday.

It prompted a frustrated rebuke from the committee’s deputy chair, Liberal MP Richard Welch, who accused the government of budgeting on the basis of “hope”.

Department of Treasury and Finance secretary Chris Barrett. Picture: Supplied

Liberal MP Richard Welch Picture: David Crosling

Victoria’s debt plan strategy, introduced in the 2023-24 State Budget, commits to managing and stabilising debt as a proportion of the total economy before finally paying it down.

Latest forecasts show the state debt is expected to hover stubbornly around 25 per cent of Gross State Product until 2029 when it is tipped to peak at a record $194bn.

At that time Victoria will be paying more than $10bn a year to service the debt.

Treasurer Jaclyn Symes will fly to New York on Wednesday to meet with heads of ratings agencies who have repeatedly warned Victoria is at risk of a downgrade from its nation-low AA rating.

Such a move would lead to increased borrowing costs and make it harder for the government to start lowering the state’s debt profile.

Mr Barrett said modelling had been done on a change in interest rates only, and not the impact of a credit rating fall.

In a post budget report Moody’s Ratings raised serious doubts about the Allan government’s ability to cut spending and drive down its forecast $194bn debt.

It specifically questioned assumptions built into the budget including slashing spending growth by almost half to 2.9 per cent and warned that increasing cost pressures from the $34.5bn Suburban Rail Loop and a “political resistance to spending cuts” could wreak havoc with the government’s debt repayment plans.

Jaclyn Symes will fly to New York on Wednesday. Picture: Asanka Ratnayake

It said while plans to axe thousands of jobs from the public service _ pending a review to be handed to government next month _ would curb inefficient spending, more work would be needed.

“We expect an improving economic backdrop to support Victoria’s operating performance and help mitigate risks from high and rising debt and weakening debt affordability,” it said.

“However, global economic uncertainties and geopolitical tensions pose risks to the fiscal outlook.”

Under questioning from the Opposition Ms Symes also refused to rule out using treasury advances for foreseeable budget overruns.