Premier Daniel Andrews leaves Victoria a truckload of debt and an unclear energy future

Daniel Andrews and his likely successor Jacinta Allan inspect a new train at ANZAC Station, Metro Tunnel, back in July. Picture: NCA NewsWire / David Geraghty

As a Victorian and as an economist with a particular interest in public policy, I say good riddance to Dan Andrews, about to be ex-Premier of my state.

He has overseen an alarming deterioration in the fiscal position of the state, its prized AAA credit rating was lost under his watch – and by two notches – and there is every indication that there will be further downgrades as government debt spirals to unsustainable levels.

You only have to look at the figures to see the problems. When Andrews became premier some nine years ago, government net debt in Victoria was a tad over $23 billion. As he leaves office, it is $135bn. It has gone from 6 per cent of Gross State Product to 23 per cent of GSP. It is now close to twice government revenues.

And just in case you think that this fiscal blowout was all caused by Covid, think again. The rapid increase in debt caused by excessive growth in employee expenses and unsustainable spending on overpriced and much delayed infrastructure predates the outbreak of the pandemic.

But it gets worse: on the government’s optimistic forecasts, net debt is expected to climb to $171bn by 2026-27. There are however reliable estimates to suggest that the actual figure will be higher again – to above $200bn.

The overspend on infrastructure projects – and not counting the totally unjustified and foolish Suburban Rail Loop – relative to the initial estimates is at least $30bn. Andrews’s deep connection to the union movement is key to explaining the explosion in infrastructure spending, as well as other government decisions.

Unsurprisingly, one of the fastest growing line items in the Victorian budget is net interest payments, now close to $4bn per year and set to increase rapidly.

The reality is that the Victorian economy has not got a great deal going for it apart from rapid population growth spurred by excessive numbers of new migrants. In turn, this has led to a construction boom of sorts, including the expansion of outer-suburban but badly serviced housing estates and poor-quality high-rise apartments located closer to the CBD. (A bit of defective cladding, anyone?)

There is no mining to speak of in Victoria (there is wads of gas that could be exploited but Andrews ruled that out), the manufacturing sector is shrinking, there is some agriculture and lots of education, of variable quality. It’s a people-based economy.

In the meantime, Andrews has pursued a relentless emissions-reduction policy but has failed to comprehend the risks. Energy prices have risen sharply and there is now growing resistance to any further renewable energy projects, including offshore wind, as well as new transmission lines. The future of the electricity system is very precarious, particularly given the delay and scaling back of the Marinus Link with Tasmania.

There is surely an irony in the fact that the Andrews’s Labor government is currently propping up two brown-coal fired plants (Yallourn and Loy Yang A) at unknown cost – commercial in confidence, you must understand – while banning the reticulation of gas to new homes. It must be the vibe, the look – politics has always been Andrews’s forte rather than sound policy.

The new premier inherits a truckload of problems. If the role falls to Jacinta Allan, it will be yet another case of the glass cliff – a woman being lumbered with a very large bundle of intractable challenges and being ‘thankful’ for the opportunity.