Victorians are cutting back and it’ll be a nightmare for the RBA

For most of 2023 the nation was waiting for Victoria to collapse under the weight of its high government costs, irresponsible borrowings and unrestrained spending plans.

But our second largest state by population held up remarkably well for the whole year. Now, in the last few weeks, Victoria has cracked.

In December, Victorians who are not under rent or mortgage stress were spending at the national rate. Then in January they suddenly began to cut back.

The spending reduction momentum is gathering speed and those under financial stress are now cutting even further and seeking more outside help. Later, I will detail the reasons, but one event turned the tide — a complex property tax.

Other states and the Commonwealth should learn the Victorian lesson.

As my regular readers know, over the last couple of years my network has been very accurate in picking national retail spending changes. This is the first time the network has passed on a state change in such a short time so, while its untested, it is my duty to pass it on. Nevertheless, I am confident as to what is now happening in Victoria. It will be a couple of months before this January-February Victorian setback seeps into the official figures.

Nationwide during 2023 those under financial stress cut back their spending sharply and this created a decline in the overall market, which was accelerated by bad weather in the final two months. But, retailers who were smart in selling to the 60 or 70 per cent of Australians who are not under financial stress avoided most or all of the overall setback.

Myer and JB Hi-Fi’s traditional business are examples of groups which held sales in the December half year, although costs rose. Good Guys’ (owned by JB Hi-Fi) sales fell 10 per cent.

My network tells me the Victorian spending reduction is gathering speed. More of those under financial stress are seeking outside help.

In 2024 the 2023 situation continues in all mainland states apart from Victoria, while Western Australia in particular is booming.

This is a nightmare situation for the Reserve Bank trying to set national interest rates.

A series of taxes brought in under former Victorian premier Daniel Andrews are partly to blame. Picture: Asanka Ratnayake

As well as the property tax, the Victorian government in 2023 began a desperate series of new taxes it justified for all sorts of reasons rather than the true one — “we don’t have enough money and our astronomical debt is now costing us a fortune”.

The taxes were ingenious and aimed at business. They included a solar and wind tax on farmers; a container tax on importers and exporters; an education tax on private schools; a tourism tax via Airbnb homes and a health tax on general practitioners. They even tried an electric car tax but it was thrown out by the High Court.

All these taxes are passed on to consumers and hit Victorians in every sphere. History tells us such taxing sprees often occur when voters elect a government which hires large numbers of public servants but does not have sufficient talent, skills or money to undertake its agenda.

When such governments attack property they attack the heart of community wealth and confidence.

Victoria is very close to China and should have learned from the Chinese how important property has become in modern societies, whether they be dictatorial or democratic.

Victoria already had a land tax on second homes including holiday homes. But, the government dramatically increased these taxes, subject to a complex series of rules.

Large numbers of people had properties which fell outside the exception rules so were taxed extremely heavily, adding to their council rates, maintenance and interest.

Those with more expensive second homes on the Mornington Peninsula, Surf Coast and other areas concluded “enough is enough” and large numbers put their property on the market. Not only did their expensive homes fall in value, but many couldn’t be sold.

This had a chilling impact across the Victorian landscape because affluent Victorians heard the dismay of their friends and realised what they had counted as a stable asset was no longer saleable at anything like previous prices.

The confidence decline spread rapidly and retail spending was impacted.

There are warning signs in other states who can learn from the Victorian mess.

Meriton’s Harry Triguboff is so frustrated with the NSW planning and approval bureaucracy he is considering abandoning building in Sydney. Brisbane is completely dominated by the CFMEU and costs are out of control. WA builders are handing out 25 per cent pay rises like lollies with no productivity gains.

The Victorian government public service ballooned in the boom and there are now at last some retrenchments but not nearly enough and they are not always well targeted. I was recently yarning to a beaming retrenchee who pockets the money and knows his skills will be in demand elsewhere — perhaps even by the Victorian government.

Meanwhile, what compounds the impact of the Victorian property, health, solar, wind, education, tourism and container taxes is the feeling of hopelessness. There may be more taxes in the pipeline.

The ALP in Victoria is funded mainly by the CFMEU and the union can see a decline in major projects, so demanded a long term source of employment — whatever the cost.

The government has chosen a $120bn-plus so-called “underground suburban train to nowhere” project.

What it should have done was to use outside capital and sensible planning rules to harness dwelling development for its abundant land, serviced by infrastructure.

The state does not have the skills nor labour base to do both and does not have the money to pursue the “train to nowhere” project without enormous debt.

Victoria is sadly headed towards more borrowing and taxing. Federal intervention may be required.

Normally in such situations the Opposition party prepares for government but they have decided to have an internal squabble which extends to court battles.