Policy off the rails and sinking under mountain of debt

Victorian Treasurer Tim Pallas looks on as Victorian Premier Jacinta Allan hands the Victorian budget to the floor of Victorian Parliament.

Victorian Premier Jacinta Allan wants to be a leader who builds things. True to form, she has got out of the blocks quickly and is building Himalayan levels of public debt. Meanwhile her Treasurer, Tim Pallas, has the air of a man who has been given a limited amount of money to go to the shops and purchase a few affordable basics, only to return home bearing a packet of red glitter, scented lip balm and a toy mobile phone filled with jelly beans.

Victoria leads the nation in public debt, which stands at an eye-watering $126bn. NSW is not far away and may yet exceed Victoria’s indebtedness.

In Victoria, it’s tax and spend with burgeoning deficits as far as the projections can go.

Beyond fiction and manifest optimism, budgets are also works of euphemism where economic disasters of the past are quietly rendered into oblivion in the hope no one remembers them. Pallas’s budget offers spectacular examples. One announcement on Tuesday has the government formally cancelling the proposed expansion of the Royal Melbourne and Royal Women’s hospitals on a site in North Melbourne, keeping them at their existing location in Parkville. Money saved, one might think. Well, yes and no.

There’s a story here that few people know about. It’s more a planning failure than an expenditure one but still comes at a significant cost and with no benefit.

The Andrews government announced the creation of what it called a teaching hospital campus in 2022 under which the Royal Melbourne and Royal Women’s hospitals would be relocated to North Melbourne, adjacent to the shiny new Arden station, one of five new stations in the Victorian Metro Tunnel Project due to open in 2025. Arden station sits, as yet unused, adjacent to the Melbourne rail yards where the state owns quite a lot of land.

Tim Pallas

Relocating two major hospitals almost makes sense until one realises that for optimal results, diagnostic imaging machines – CTs, MRIs, ultrasounds, your basic X-rays – ideally should be bolted to a floor below the earth’s surface to prevent even minute movement but also, and here’s the rub, a safe distance from electromagnetic fields one might find at, oh I don’t know, a rail yard or maybe a recently dug underground mass transit system.

Thus this grand feat of planning got stomped on in Tuesday’s budget without any apparent embarrassment from the Premier, the Treasurer or the Health Minister.

Millions of dollars had been spent in preparing and planning. The architects’ models alone would have cost a fortune. It came and went with a multimillion-dollar price tag only to be thwarted by forces well within the government’s reckoning had they bothered to ask an electrical engineer a few sensible questions. Instead there was no blame sheeted around for this expensive policy failure. It was more like having a fall after several hours of refreshment and blaming gravity.

This story is the testament, the monument and possibly the mausoleum of the Andrews-now-Allan government’s big-spending ineptitude.

In a half-trillion-dollar economy, having debt forecast to hit a quarter of the state’s annual income or gross state product may not create a certainty of an impending economic bust but everything and anything would have to go right for the state to manage its debts. A great many of these forces are beyond the control of any state treasurer. There are economic challenges but, more important, looming political ones that would threaten the life of any government. In another euphemism, Pallas has pointed obliquely to one.

“Total general government sector expenditure is expected to be $98.3bn in 2024-25 and is expected to grow by an average of $2.2bn a year over the forward estimates, reaching $105bn in 2027-28,” Budget Paper No.2 reads. In a back-of-the-envelope calculation that’s a 2 per cent increase every year, below the current inflation rate. Much of the expenditure comes from wages, salaries for teachers, nurses, firefighters, ambulance drivers, emergency response workers. If the government stays true to its projections, all of these workers can expect their wages to decline in value against inflation.

Right now in Victoria, many of these workers are negotiating enterprise bargaining agreements or will be soon. So far it hasn’t gone well, with complaints that even existing salaries and conditions are being undermined by the Allan government. This leads to the possibility of a budget blowout on government expenditure or, more likely, a furious round of industrial disputation from the people who keep Victorians safe and healthy and are a damned sight more admired than politicians.

Victorian Premier Daniel Andrews

It’s a stark reminder of how governments collapse amid a crisis of public faith and confidence. In January 1990, the tram workers union pulled the pin over a wage claim. The government had nothing left to give them. The trammies went on strike but, more than that, they drove their trams to Bourke and Spring streets where the Victorian parliament sits, took out the keys, locked up the trams and left.

It wasn’t the collapse of the State Bank of Victoria or its doomed merchant bank, Tricontinental, that ultimately would hurl Labor from power but a long, depressing line of trams parked outside the parliament that did all the harm. In the weeks that followed, Labor staff and politicians would peer out from their offices to the traffic mayhem outside and knew in their hearts their geese were cooked.

History doesn’t repeat with precision, otherwise Archer would win the Melbourne Cup again this year, but the lessons of history point to the folly of governments that fail to rein in public debt and how quickly they can fall from favour.