The Victorian government’s flagged reaction to the massive swing against it in the weekend by-election has the potential to create a national crisis, which has never previously occurred in our 125-year history since Federation.
Thankfully, our wonderful founding fathers allowed for such a potential crisis in the Constitution.
Before explaining the drama, which began before the Werribee by-election, let us enjoy a moment of merriment with a message. Today I formally invite Andrew Lloyd Webber to come to Australia and adapt the plot of his musical of Evita (which was based in events surrounding Eva Peron in Argentina during the 40s and 50s) to what is happening Down Under in 2025.
In the modern 2025 Evita, the main female character receives a terrible drubbing by evil voters at a regional election, and she moves to centre stage and sings with great gusto with the backing of the full orchestra:
“I am listening, I am listening.
“Open your wallets and purses and the money will come flowing in …”
And surrounding her is a large chorus singing the lines “Spend baby spend, Spend baby spend …” (Webber would need to apologise to Donald Trump if he used that line).
Now to the Victorian drama, which started before the by-election when a number of superannuation fund managers casually asked Liberal frontbenchers whether a federal Coalition government would bail Victoria out of its debt mess. They were told in no uncertain terms: No!
What was particularly worrying to the fund managers was that it is now clear that the disastrous Victorian energy plan will send power prices much higher and endanger supplies.
Just as bad, a whole series of gas restrictions are being imposed to deliberately make gas distribution uneconomic, so forcing out of business a vast number of enterprises that require gas.
Add that to the huge taxes the state is imposing, forcing people to leave the state.
The huge Victorian debt and what is happening on the ground are making some institutions realise they can no longer rely on the inflated credit rating levels that New York rating agencies dream up.
Indeed, simply relying on trumped-up ratings is dangerous for superannuation members and could even see the managers sued if interest can’t be paid.
The same applies to overseas institutions.
One of the assets the state has to rescue itself from the debt mire is its vast gas reserves. Last week some institutions with investments in Victorian debt attended the Melbourne Mining Club’s lunch in the hallowed halls of the Melbourne Town Hall, where Woodside chief executive Meg O’Neill, in the presence of Exxon and other potential gas developers, explained why Woodside believed it was not welcome in Victoria.
The institutions in the audience lending to Victoria got the message.
The New York credit rating agencies are demanding Victoria cut spending. This will require a nasty “official” budget.
Under pressure from the Albanese government, Victoria’s budget date was moved back from May 6 to May 20 so that a federal election can be held as late as May 18.
A nasty state budget could see the Albanese government lose many Victorian seats.
Of course the budget itself will be tailored in exactly the same way as many previous Victorian budgets – a document of fiction will be presented to the New York rating agencies which in the past have not concentrated on the Victorian realities.
This time round in New York, with everyone thinking about Trump, Victoria thinks that it might again get away with another budget that promises spending restraint that will never happen.
The most likely real outcome is that Victorian Premier Jacinta Allan will embrace the strategy that helped her predecessor Daniel Andrews win past elections: spend and spend big. Don’t worry about borrowings because agencies can be managed. Writing in Melbourne’s Age, Chip Le Grand confirms this will be her strategy.
However, a number of ALP members want her to abandon the crazy so-called “Train to Nowhere” project in Melbourne’s eastern suburbs in favour of spending big in the western suburbs, probably including the airport rail link where the commonwealth is offering money. No one is contemplating spending restraint. That’s just for budgets.
But there are three other important parts of the drama:
• The Constitution allows the Commonwealth to grant money to Victoria on any terms. It can put restrictions on the Victorian government management as part of those grants. But Victoria believes part of its huge debt was created because Victoria is forced to use part of its GST entitlement to subsidise WA and SA. Meanwhile, NSW and Queensland get far more capital works assistance. The commonwealth should be required to reimburse Victoria. These will become important future issues.
• The next Victorian election is in November 2026 and Allan will paint the now united Victorian opposition as people who would slash benefits. Victoria’s opposition will need to study carefully what’s happening in the US, where as part of a sweep of measures, digital systems are being put in place to maintain selected benefits but slash the operating costs.
• Allan has suddenly woken up that one of Victoria’s greatest assets is Melbourne’s suite of sporting/entertainment venues, which are among the best in the world. It’s taken a long time.
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