As a regular user of public transport in Melbourne, can I tell you that giving free rides to children aged under 18 won’t make much difference to the budget bottom line? The vast majority of kids don’t bother to swipe on and off now.
Yet handing out “free stuff” has become an integral part of governments’ playbooks, both state and federal. In this case, it’s less an issue of the dollars involved and more of the culture of entitlement that is instilled in the population. Let’s face it, it’s a one-way street for most of these entitlements. Politicians take them away at their peril.
I gave up going to Victorian budget lock-ups long ago. They are just a case of lies, damn lies and Victorian budgets. Because the accounts are split between recurrent and capital accounts, there is a great deal of fudging that goes on. There’s not really any point focusing on the recurrent budget outcome – in this case, a trivial $600m surplus next financial year, down from $1.6bn in the budget update.
The key is government net debt and the spiralling lack of control that has characterised Victoria’s budget outcomes for nearly a decade. The net debt to gross state product ratio will exceed 25 per cent next financial year and the forward estimates optimistically put the net debt figure in 2028-29 at $194bn. Sure, it might not have a 2 in front of it, but it’s odds-on-to-a-dollar that it will end up over $200bn and before 2028-29.
Had the state received value for money for the vast sums spent on infrastructure, it would be one thing. But every major project is massively overbudget and massively delayed. Take the Metro Tunnel project. The cost overrun is at least 50 per cent, it still isn’t finished, and its operational advantages have been significantly compromised.
The cover-up in the budget is particularly apparent in the assumptions made about the growth in spending. We are expected to believe that next financial year, total expenses will go up by 3.5 per cent. And the year after that – an election year – they will increase by only 0.6 per cent. Pull the other one, I say.
At the same time and underpinned by the fact Victoria is the highest taxing state of all, total revenue is expected to grow by 8.1 per cent next financial year and by 7.7 per cent in the year after that.
The trouble for the Victorian government is that taxes have been pushed to the point where the geese are truly hissing, indeed flying off to other states. (The reference here is to the famous quote of finance minister to France’s Louis XIV’s that “taxation is the art of plucking the goose without making it hiss”.) This flight of funds takes some time but the trend is clearly emerging.
Given that Victoria receives virtually nothing by way of mining royalties, the state is forced to rely on a very narrow tax base. Witness here the reaction to rapidly rising land taxes and other levies.
To lob farmers with a much higher fire levy is surely a slap in the face to the same farmers who volunteer to fight fires.
And let’s not overlook here the fact that the federal government is already bailing out Victoria with more GST revenue as well has other backdoor grants such as money for insupportable infrastructure projects such as the Suburban Rail Loop.
If there was a year in which the Victorian government might warn the citizens of the dire state of the budget and the need for cuts and sacrifices, this was the year. But after last year’s chaotic and failed attempt to trim the health budget, the relatively new Premier, Jacinta Allan, and her very new Treasurer, Jaclyn Symes, clearly don’t have the stomach for belt-tightening.
No doubt, the ratings agencies will be taking a careful look at the detailed budget figures.
All going well, interest expenses are expected to increase from just under $7bn this year to $10.5bn in 2028-29. Any ratings downgrade would add further to interest expenses.
As Ernest Hemingway pointed out, there are two ways to go bankrupt – gradually, then suddenly.
This could easily apply to Victoria unless some genuine budgetary repair is undertaken, sooner rather than later.
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