What Victoria’s climbing debt means for the state

Victoria’s independent budget watchdog has warned that dealing with the state’s mounting debt burden is only set to get harder.

Victoria’s independent budget watchdog has warned driving down the state’s record debt level is set to get harder.

In a post-election review published on Wednesday, the Parliamentary Budget Office said: “the likelihood of paying debt down is shifting further into the future”.

“While successive budgets since the 2020–21 budget have revised forecast net debt as a share of the economy downwards, continued forecast increases indicate that the task of dealing with Victoria’s debt burden is getting harder,” the report said.

Victorian net debt, as a share of the economy, grew from 5.5 per cent in 2018-19 to 19.3 per cent in 2021-22.

Government forecasts predict it will reach 24.6 per cent in 2025–26 when the state’s debt hits an expected $165bn record.

The PBO report found “continued growth in net debt as a share of the economy indicated that stabilisation of this ratio would be at a much higher level than envisaged prior to the last parliament”.

Future governments would also have reduced capacity to respond to economic shocks in the same way.

The review expects Victoria to retain the highest net debt to GSP ratio of any other Australian state, and more than 50 per cent higher than the next highest state.

In 2021, the PBO accused the state government of hiding the state’s true financial plight from Victorians. Picture: Nicki Connolly

Analysis of Labor’s 82 election policies would see net debt driven down just 0.6 per cent, or $982m.

By contrast, the PBO found under a Coalition government, net debt would have been 6.2 per, or $10.3bn, less.

In 2021 the PBO accused the state government of hiding the state’s true financial plight from Victorians in a bombshell report that criticised missed and blurred key figures in the state budget.

The report accused the government of:

• Scrapping or modifying most of its own fiscal targets;

• Burying key details to make it harder for Victorians to properly monitor its financial performance;

• Failing to be transparent about the government’s debt position;

• Defining fewer targets, and less clearly, than before the pandemic; and

• Ignoring recommendations made by the parliament’s budget watchdog.

“Crucially, four-year forecasts in the budget are not sufficient to show when the government expects net debt to peak or stabilise,” the report found.

“This has increased in importance given the layering of the long-term economic and debt impacts of the Covid-19 pandemic with larger transport infrastructure projects.

“Recent Victorian budgets have not presented a transparent and cohesive fiscal framework.

“Components are spread throughout the budget papers, and are vague, making objective assessment of performance difficult.”

Opposition leader John Pesutto said he wanted to work with the government to help drive down debt.

“The government does have to come to the party to, and it needs to work harder to pay attention to some of the pressures and challenges that Victorian households are facing,” he said.

“Our job, as an opposition, is to work constructively with the government.

“What this report is showing, potentially in the face of many commitments that are not funded, is that we don’t even know the full extent of the costs and impacts of Daniel Andrews’ promises.

Shadow Treasurer, Brad Rowswell, said the report painted a bleak picture of Victoria’s economic future under the Andrews Government.

“With Victoria’s net debt already set to exceed that of New South Wales, Queensland and Tasmania combined, Victorians cannot afford another four years of higher taxes and even more debt,” Mr Rowswell said.

“Victoria needs a new approach to its fiscal and economic management that returns respect for taxpayers dollars and reins in Labor’s spiralling debt, waste, mismanagement and higher taxes.”

The report warned that as debt climbed, longer projections were vital to assessing the long-term fiscal implications of current policy and infrastructure decisions.

But it said it was being hampered in doing its work because of constantly changing targets that made the state’s true financial position difficult to properly assess.

It also warned the current practice of four-year forecasts was no longer sufficient.