Faced with a sea of red, Pallas needed villains. But spin and blame might not be enough

It’s easy to see why Treasurer Tim Pallas has described this – his ninth budget – as the most difficult he has had to deliver.

Faced with a sea of red, the government has taken the decision to slug landlords and employers with higher taxes and axe up to 4000 public servant jobs in an effort to pay off its soaring debt, much of which was racked up during COVID-19 lockdowns.

Handing down the budget, Pallas tried to explain away the debt burden as simply the cost of keeping Victorians safe, making a distinction from debt accumulated before COVID-19, which he said was done to build, invest and grow the state.

Careful of that spin. Spending during the pandemic will account for about 27 per cent of the state’s net debt this financial year, but COVID-19 is doing the bulk of the heavy lifting when it comes to the blame.

In truth, the government had started racking up debt years before the pandemic hit, and higher taxes and public service cuts are the only option.

With the Reserve Bank on the nose, the government is also pointing the finger at its governor, Philip Lowe, who encouraged states to borrow cash to prevent “economic scarring” and long-term unemployment.

It’s also being pitched as the time for those who did well in the pandemic years – landlords and big businesses – to chip in and help the government pay the bills.

Even with landlords and businesses chipping in more than $8 billion over the next four years, the government’s debt will continue to rise from $135.4 billion in 2023-24 to $171.4 billion by 2026-27 – or 24.5 per cent of the state’s economy.

The government isn't doing much heavy lifting when it comes to paying down its own debt. Instead, it plans to keep up with interest payments on its record borrowing and “stabilise” the debt.

Politically, it may be a smart strategy, as most Australians can relate to the impact rising interest rates are having on their own household budgets.

There is also not a lot of love for landlords from a generation of voters struggling to break into the housing market and battling rising rents.

It plays into a bit of old-fashioned class warfare, with Pallas telling parliament “it’s only fair that those that did well contribute to the repayment effort”.

Pallas denies this, of course, but with the big end of town, landlords and private schools in the firing line, it's hard not to view him as a modern-day Robin Hood.

Having identified some villains to whack with tax hikes, the government hopes those impacted will simply pay their new tax bill and get on with it – with nothing more than a little whinge on the way through.

It's the sort of budget governments hope never to deliver, but if they are forced to, they like to make these hard decisions after election wins, hoping that any pain will dissipate by the next time Victorians go to the polls.

However, with debt levels this high, the government might struggle to turn the tide by 2026 when debt hits $171.4 billion - 24.5 per cent of gross state product.

Before the budget, economists and business groups warned that any changes to payroll and property taxes could also have a flow-on effect, with costs passed on to consumers and renters already doing it tough amid a cost-of-living crisis.

If that's the case, the spin and blame might not be enough.

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