Doubts raised about Allan govt’s ability to slash spending, reduce debt

Experts have raised concerns about the Allan government’s ability to slash spending and reduce ballooning debt, warning a “political resistance to spending cuts” could wreak havoc with repayment plans.

A major ratings agency has raised serious doubts about the Allan government’s ability to cut spending and drive down its forecast $194bn debt.

Responding to this week’s state budget Moody’s Ratings – one of three global agencies to rate Victoria – warned tougher actions would need to be made to impact the worsening debt profile.

It comes just a day after Treasurer Jaclyn Symes conceded she pushed to make more drastic cuts in her first budget but was ultimately talked down by her colleagues.

Victoria’s debt plan strategy, introduced in the 2023-24 State Budget, commits to managing and stabilising debt as a proportion of the total economy before finally paying it down.

Latest forecasts show the state debt is expected to hover stubbornly around 25 per cent of Gross State Product until 2029 when it is tipped to peak at a record $194bn.

At that time Victoria will be paying more than $10bn a year to service the debt.

In a paper published this week Moody’s warned that the high and rising debt and weakening debt affordability would remain constraints on Victoria’s credit profile.

It also questioned assumptions built into the budget including slashing spending growth by almost half to 2.9 per cent and warned that increasing cost pressures from the $34.5bn Suburban Rail Loop and a “political resistance to spending cuts” could wreak havoc with the government’s debt repayment plans.

“Moderating expenditure growth may prove difficult, given expenses grew at an estimated 5.5 per cent per annum, on average, over the four years to fiscal 2025,” it said.

“The state’s goal of stabilising the debt burden and ultimately bringing it down will likely remain challenging without even stronger revenue growth, more restrained spending and sustained momentum on reform.”

It said while plans to axe thousands of jobs from the public service – pending a review to be handed to government next month – would curb inefficient spending, more work would be needed.

Victorian Treasurer Jaclyn Symes delivers her budget speech in Victorian parliament. Picture: Asanka Ratnayake

“Broader financial reforms aimed at improving fiscal transparency and accountability may also improve governance, strengthen financial oversight, support more responsive budgeting and enhance long term fiscal planning,” it said.

“The government’s cost-saving measures and continued re-profiling of capital expenditure sustain Victoria’s track record of strong fiscal management and governance.

“We expect an improving economic backdrop to support Victoria’s operating performance and help mitigate risks from high and rising debt and weakening debt affordability.

“However, global economic uncertainties and geopolitical tensions pose risks to the fiscal outlook.”

Moody’s said if those risks materialised, or the government failed to act on promised spending cuts, higher-than-expected debt would likely follow.

That could have a dire impact on the state’s credit profile and ratings which is already the worst in the nation.

Ms Symes will next month fly to New York to meet with ratings agencies who have long warned Victoria is facing a damaging record low downgrade.

Such a move would lead to increased borrowing costs and further drive up Victoria’s ballooning debt, which is on track to be worth an estimated $71,000 per household by 2029.

Originally published as Doubts raised about Allan govt’s ability to slash spending, reduce debt