‘Show fiscal discipline or else’: dire warning to Jacinta Allan

A global credit ratings agency has raised the alarm over ‘weak’ Victorian budget performance and issued a warning over the state’s Suburban Rail Loop costs.

Premier Jacinta Allan and Suburban Rail Loop Minister Harriet Shing, left, at the SRL Clarinda construction site. Picture: Luis Enrique Ascui/NewsWire

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Victoria risks another credit rating downgrade unless the Allan government delivers a budget underpinned by “fiscal discipline” and moves to contain the cost of its “hefty” infrastructure program led by the Suburban Rail Loop.

S&P Global Ratings has issued the stark warning ahead of next week’s state budget and noted that Victoria’s budgetary performance was “on an improving trend” but still “weak” and overall remained “weaker than other states”.

If Victoria’s credit rating experiences another credit downgrade – the state fell two notches from triple-A to AA/Stable in December 2020 – the cost of servicing its $157bn debt will spiral.

“What we will be looking for in the next budget is the state’s commitment to controlling operating costs and stabilising debt levels,” Rebecca Hrvatin, an analyst at S&P Global Ratings, said on Thursday. “We view Victoria’s commitment to controlling operating costs, making cost savings, and slowing growth in debt as ­important.

“Fiscal discipline will be key to maintaining the ratings and containing costs of the state’s large infrastructure program.”

Treasurer Jaclyn Symes delivers her first budget next Tuesday as the Allan government faces major budgetary challenges, including ballooning state debt that is forecast to rise to $187.8bn by 2028, and blowouts in major infrastructure projects like level crossing removals and the Metro rail tunnel. The $34bn first stage of the SRL linking Cheltenham to Box Hill remains unfunded.

Suburban rail loop map

Ms Hrvatin said S&P Global Ratings priced the annual cost of the state’s infrastructure program at about $23.5bn. The agency forecast gross debt in 2027 would top 213 per cent of operating revenues, up from 70 per cent in 2019.

“The state’s very large infrastructure program is hefty,” she said. “This results in cash deficits between 15 and 20 per cent of revenues, which are high compared with similarly rated peers.”

This comes after Ms Symes defended a 2300 per cent land tax hike on Victorian small business owner Angie Romas, who was left reeling after his land tax bill spiralled from $8700 to more than $203,000 in the past decade.

Victorian Treasurer Jaclyn Symes. Picture: David Caird

Asked about the matter on Thursday, Ms Symes said the land tax payable by property owners was directly attributable to the value of their land.

“We want to ensure we get the balance right in relation to the levies and taxes that people pay, we want to ensure we have the revenue for the services that Victorians rely on to be delivered,” she said.

“We don’t want impacts on those that are suffering cost-of-living pressures, ordinary households and the like; that’s why we set our tax settings with consideration of those that have the greater capacity to pay.”

Other Victorian business owners have echoed Mr Romas’s sentiment and say the government’s land tax grab has stifled their growth.

Anthony Condello, an owner of Civigroup, an industry leader in earth moving, transport and plant hire that employs about 32 ­people, was hit with a $200,000 land tax bill this year for the Melton property he rents.

Mr Condello, 52, who pays land tax under the terms of his commercial lease, said the tax now amounted to two-thirds of the rent value and was stunting his business’ ability to grow.

“Land tax could contribute to someone else having a job; it takes out of your day-to-day cash flow and your ability to add back to the business and then in turn add back to the community,” he said.

Mr Condello said when he started renting the land in 2019, land tax was minimal. “Then all of a sudden, the cost of being here almost doubles because the government wants to cover their Covid expenses,” he said.

Harvey Law, 59, who owns Megasorber, an acoustic soundproofing company based in Mitcham that employs about 20 people, received a $27,640 tax bill this year.

Dr Law called on the Victorian government to remove the “discouraging” tax in order to attract more manufacturing companies to the state, which he said was important to provide jobs and skills training, especially for younger people.

Ms Hrvatin said “Victoria’s budgetary performance is on an improving trend, but it remains much weaker than its position prior to the pandemic”.

“Victoria delivered its first operating surplus in 2024, after five years of deficit,” she said.

“We expect it to continue to deliver small operating surpluses going forward, although there are risks rising operating expenditure could erode these surpluses.

“Given that Victoria’s budgetary performance is still weak, debt will continue to rise, but at a slower pace than in recent years.”

The new Suburban Rail Loop station in Clayton. Picture: Facebook

S&P Global Rating’s most recent report on the Victorian economy, released in January, the government’s management “lag those of many highly rated domestic and international peers”.

“We believe strong governance and the quality of major investment decisions are important for the fiscal credentials and credit rating on a government,” the report stated, going on to note the Auditor-General’s concerns about governance practices around the SRL.

The agency’s report flagged concerns about potential future cost blowouts in the SRL.

“We see an elevated risk this project will cost more than the latest government forecasts, given the size and complexities of the undertaking, concerns raised by the Victorian Auditor-General’s Office and Victorian Ombudsman in the planning and costings, and recent history of major state projects going well over budget,” it said.