Hit the brakes, Premier, for the state’s sake

Premier, it’s time to hit the brakes. The state’s finances are heading towards a cliff. You haven’t always been at the wheel of this careening financial crisis, but you are now, and you need to say “stop”. This is not about survival of your government. It is beyond the political; it is about all Victorians.

Last Friday, the auditor-general’s assessment of the state’s budgetary position was tabled in state parliament. The message was bleak and stark. Accumulated operating losses over the past five years now total $48 billion, the state’s $14.4 billion cash deficit is expected to continue to 2028, and gross state debt is set to pass $228 billion in three years.

Premier Jacinta Allan has tough decisions to make to get the state’s finances back on track.Credit: Eddie Jim

Of Victoria’s future, Auditor-General Andrew Greaves wrote: “While strategies and objectives are in place, the state has not articulated a clear plan for long-term fiscal management. Current strategies are short term, reactive and do not address both the existing financial challenges and emerging financial risks ... a more comprehensive approach is needed to ensure long-term fiscal sustainability and proactive management of the state’s finances.”

The tabling of the report came a day after The Age revealed that the state government had asked bidders for the first stage of the $35 billion Suburban Rail Loop to go easy on their spending until 2028 to lessen the impact on the state’s finances.

Recently released annual reports paint a picture of strain as organisations rack up losses or have any surplus capital clawed back by the government. Our hospitals ran up deficits of $1 billion last year,  and they’re going backwards. WorkSafe, V/Line, the Victorian Managed Insurance Authority, Homes Victoria and plenty of others also accumulated big losses. Meanwhile, the government, again, raided water companies and the Transport Accident Commission as it scrambled for pennies down the back of our couches.

Premier Jacinta Allan argues her government is driving down debt and ensuring budgetary discipline, but she is whistling her tune into a gathering hurricane of contrary data. On Friday, ratings agency S&P warned that Victoria could face its third downgrade in four years unless its budget can be turned around.

Beyond the management of the state’s finances there are strong signs that management of the economy is not much better. Noted economist Saul Eslake, in a recent audit of Victoria’s economy for The Australian Financial Review, found household income had fallen below that of Tasmania for the first time.

“It ought to be embarrassing for Victorians that it now has lower per capita income than Tasmania,” he noted. Indeed. Per capita gross product has declined from about 2 per cent above the national average 25 years ago to 11.5 per cent below.

In such an environment, one might look to government to prime the economic pump. Not here; there’s nothing to flow left in coffers. In fact, given the stratospheric cost of the government’s infrastructure projects, Victorians are likely to instead bear the brunt of more spending cuts and more taxes.

That could include changes in probate fees or the initiatives The Age reported on Tuesday that the government is looking at, such as selling Melbourne’s wholesale fruit and vegetable market, reducing staff at trade offices and introducing new fees including on licences. Such moves would be mere tinkering around the edges.

Little wonder businesses say they are thinking twice about Victoria. Brian McNamee, chairman of Melbourne-based biotech giant CSL, told The Australian Financial Review that fund managers had said to him Victoria was “uninvestable” given the scale of what they saw as reckless fiscal mismanagement. This view aligns with that of Australian Industry Group boss Innes Willox, who believes Victoria “has given itself a reputation as a notoriously difficult and unattractive place to invest and do business”.

Allan and Treasurer Tim Pallas will probably ignore all this, declare Victoria is open for business and cherry-pick Australian Bureau of Statistics data to claim whatever win suits that day. They will say it is the pandemic that is responsible for the budget position, not their significantly more substantial spending on infrastructure. This is all spin and will only get them so far as, clearly, something out in the real world has to give.

Of course major projects would not be built without accruing debt. Also there is some logic to the funding of intergenerational infrastructure being spread over a longer time frame.

The question is how much is too much, and how much is sacrificed to do so. We say enough is enough. Hard decisions must be made. When it comes to the hole our budget is in, it’s well past time to stop digging.

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