Victoria: a dangerous state of red

Melbourne’s Suburban Rail Loop is the “biggest dog in terms of costs versus benefits in taxpayer-funded infrastructure in Australia”, according to economist Chris Richardson. It is part of a world of economic pain that the governments of Daniel Andrews and Jacinta Allan have inflicted on Victorian taxpayers. And worse is to come, Victoria editor Damon Johnston reports. Prolonged financial hardship is invariably the case when big-spending governments let debt spiral out of control.

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. If the cost of borrowing on global markets continues to soar, so will the state’s interest bill. Ratings agency S&P Global has confirmed the cost of borrowing money is on the rise as the world moves into an “environment of potentially higher for longer interest rates”.

Instead of paying about 2.4 per cent interest, the Victorian government could find itself paying about 4.5 to 5 per cent. The increased debt servicing costs would be driven not only by higher rates but also by the government’s need to increase the existing debt levels. A week ago, Victorian Auditor-General Andrew Greaves 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 $268.4bn by 2028.

The Suburban Rail Loop project, linking Melbourne’s southern and eastern suburbs, has caught the attention of global financial watchers. The first stage is budgeted to cost $34bn but it is unfunded. And the overall cost is expected to be more than $125bn.

As S&P director Martin Foo told The Australian, the Victorian government is hoping the federal government will chip in a large sum of money but that has not been committed yet. Much will depend on Canberra’s worsening budgetary position and the result of next year’s federal election. The Suburban Rail Loop, the point of which eludes many Melburnians, needs to be an issue at the next Victorian election, due in two years.

Bad as the debt positions of other states and the federal government are, the predicament facing Victorians is dire. Remedying it will be painful, but it is essential. Across time, it will undermine the state’s ability to deliver health, education and transport services. It is also an object lesson to other jurisdictions tempted to loosen the public purse strings by putting populist spending on the plastic to court popularity or satisfy ideological whims.