Budget disasters repeat for Labor

Tim Pallas is going but the impact of the longstanding Victorian Treasurer’s high-tax and debt-funded approach to state finances will be long-lasting, and is only starting to be properly understood. Victoria’s budget position is untenable and there is little to suggest that state Labor under Jacinta Allan has a credible answer to how to bring it back under control. Mr Pallas’s self-reflection on retirement: “I’ve had my time for better or worse. I’ve tried my best,” does not begin to describe the financial predicament he leaves.

Victorian Auditor-General Andrew Greaves has warned that the Allan government’s financial strategies were too “reactive” and lacked long-term vision, with the state’s gross debt forecast to balloon to $264.4bn by 2028. Too much emphasis has been put on punitive taxes applied to aspirational endeavour including property. The lessons are being relearned that lifting taxes will only encourage investors to look elsewhere, compounding the economic malaise. What is left is a smaller productive economy trying to prop up the ever-expanding demands of a bloated public sector. As Victorian editor Damon Johnston wrote earlier this month, Treasury Corporation Victoria figures reveal that the state’s $86bn debt time-bomb will begin detonating from 2029, when it will be due to be refinanced up to 2034. Given higher borrowing costs in global markets, interest rates on state debt could double from the current rate to as high as 5 per cent.

Victoria’s predicament is reminiscent of the state’s earlier economic calamity under the watch of Labor’s John Cain and Joan Kirner from 1982-92, which required the corrective measures of a focused and ambitious Liberal premier, Jeff Kennett, to fix. Sadly, there is no prospect of a Kennett Mark 2 in sight. But Opposition Leader John Pesutto was right to put much of the blame for Victoria’s predicament at the feet of Mr Pallas, who was Treasurer throughout the premierships of Dan Andrews and successor Ms Allan. Mr Pesutto said Mr Pallas had left a fiscal legacy of mounting debt, crippling taxes and the country’s highest unemployment.

Government expenses are growing much faster than revenue, increasing the debt-and-deficit burden. Interest payments on state debt could soon account for 10c of every dollar of government revenue. But Mr Pesutto owes Victorians more than a commentary on the failings of his adversaries. He must put forward a clear plan to fix them.

More worrying is federal Treasurer Jim Chalmers’ appraisal of his Victorian state counterpart. Dr Chalmers said Mr Pallas had made an enormous contribution to the state. “Over 10 years and 10 budgets, and all of his experience before then, he has been a huge contributor to the state of Victoria,” Dr Chalmers said. It is the sort of budgetary contribution Dr Chalmers must not be keen to emulate for the nation.