Red ink swamps Victorian budget as debt forecast to top $150bn

Victoria is plunging deep into the red, with a massive operating deficit of $23bn locked in and state debt forecast to hit a monstrous $154bn within two years.

Victorian Premier Daniel Andrews. Picture: David Geraghty

Victoria is plunging deep into the red, with a massive operating deficit of $23bn locked in and state debt forecast to hit a monstrous $154bn within two years.

The sheer scale of Premier Daniel Andrews’ debt-and-deficit gamble to jump-start the state’s coronavirus-gutted economy and at the same time turbocharge major projects is now clear.

The release of the headline numbers ahead of Tuesday’s Victorian budget also confirms how seriously the state’s economy was ravaged by the four-month lockdown ordered by Mr Andrews to defeat the COVID-19 second wave, which claimed 800 lives.

The Andrews government has defended the debt binge, describing the coronavirus pandemic as the “single biggest global recession since the Great De­pression” that had cost 182,000 jobs in Victoria and cut economic output by 4 per cent this year, while also slashing tax revenue by 11.9 per cent.

Victoria’s net debt escalation is extraordinary. In 2018-19, it was $25bn. This climbed to $44bn in 2019-20. But debt will now quickly triple, rising to $86bn in 2020-21, and $154.8bn in 2023-24.

The state’s deficit was sitting at $6.5bn in 2019-20 and will reach $23bn this financial year, before it is forecast to fall to $13bn in 2021-22 and $6.7bn in 2022-23.

The estimated reductions are based, in part, on the property market rebounding and the broader economy fighting back, underlining the risks involved in the strategy.

The Andrews government has defended the big spend, saying it was designed to protect household budgets and businesses, and citing record low interest rates and the fact that debt averaged only 4.4 per cent of the revenue over the forward estimates.

“This is a budget that puts the Victorian people first with the support they need to recover and rebuild,” the state’s Treasurer, Tim Pallas, said. “We’re using the strength of our balance sheet to repair the hardship caused by the coronavirus on families, workers and businesses.”

The Andrews government has already unveiled billions of dollars in new budget measures in recent weeks, including a $5.3bn public housing package, $2.2bn for early works on the suburban rail loop, an $869m mental health package, $797m in initiatives to help Victorians cover the costs of their power bills, and $155m for an institute of infectious diseases.

“We’re following the blueprint of jurisdictions around Australia and the world, who are using their own budgets to protect household and business budgets,” Mr Pallas said. “We can’t fix the economy until we’ve addressed the public health crisis. We’re now in a better position than so many jurisdictions right around the world and our economy can return to a position of growth — and this budget gives it the kickstart it needs.”

Victoria’s projected debt dwarfs that unveiled by NSW Treasurer Dominic Perrottet this week, who has projected his state’s debt will hit $104bn in 2023-24.

The NSW budget deficit is also substantially smaller than Victoria’s at $16bn in 2020-21.

Mr Andrews has two years before the next state election, set for November 2022, to turn the economy around and mount a campaign for a third term in office.

The government said the budget strategy followed an urging from the RBA governor Philip Lowe and federal Treasury secretary Steven Kennedy.

Its hopes are pinned on the “quick and strong recovery” of the economy with “coronavirus numbers driven down and Victoria opening up again”.

Infrastructure investment is tipped to average $19.6bn a year over the budget and forward estimates — that’s four times the 10-year average prior to 2014.