Former Victorian treasury official Michael Brennan calls for Jaclyn Symes to reduce investment in capital projects and cut spending

A former state treasury official has warned “Victoria’s fiscal management needs a course correction” in the looming Budget and questioned whether the Covid pandemic “really warranted six years of deficits”.

Victorian Treasurer Jaclyn Symes has been called on to drastically reduce investment in capital projects and cut spending. Picture: David Caird

A former Victorian treasury official has warned the Allan government must take drastic action in next week’s state budget or risk a further erosion of Victoria’s economy.

Former Department of Treasury and Finance deputy secretary, Michael Brennan, has called on Treasurer Jaclyn Symes to both drastically reduce investment in capital projects and cut spending.

And he has warned that the budget could be completely undermined by over-optimistic forward estimates which blur the state’s true financial position.

“It is not widely appreciated just how serious Victoria’s fiscal problems are,” Mr Brennan said.

“Victoria’s fiscal management needs a course correction.”

Michael Brennan is now CEO of e61 Economics. Picture: Jeremy Piper

Treasurer Jaclyn Symes. Picture: David Caird

Before taking up his role as current CEO of the e61 Institute, Mr Brennan worked for former Victorian treasurer Alan Stockdale and was chair of the Productivity Commission.

He said despite the state’s first projected operating surplus since before Covid, record high debt remained an unrealised concern.

“Achieving an operating surplus is a fairly minimal hurdle for a state government. The bigger question is whether Covid really warranted six years of deficits,” he said.

“High debt constrains, and then chokes, the Budget. Victoria already pays more in interest than it spends on police. But this is only the beginning.

“The impact of higher interest rates is yet to fully hit, because only around 10 per cent of the state’s debt matures and is refinanced in any single year.

“Interest is forecast to rise by over 40 per cent in the next four years – by far the fastest growing budget item.

“It will take a long time before the impact of expected future interest rate reductions flows through to the Budget.”

Mr Brennan previously worked for former Victorian treasurer Alan Stockdale and was chair of the Productivity Commission. Picture: Jeremy Piper

Official forecasts show Victoria’s debt is on track to hit $188bn by 2028, but blowouts on major projects and the government’s wages bill are expected to significantly impact that figure.

The government is frantically working to avoid a debt blowout, sources warned could see net debt exceed $200bn for the first time in the state’s history.

Sources familiar with budget planning said funding could also be slashed to critical local services to curb spending.

But Mr Brennan said the state’s soaring public sector wages bill was of huge concern, amid an ongoing review aimed at cutting thousands of jobs from the public service.

The government’s latest financial update showed expenses had increased by $3.36bn more than anticipated while inflaming fears about the state’s debt trajectory.

“Nearly 40 per cent of the Victorian budget is employee costs,” Mr Brennan said.

“This is the area the Victorian government has struggled to control.”

Mr Brennan said it was vital budget forecasts were measured.

“If the budget forecasts growth in employee expenses beyond the budget year of less than 4.5 per cent (roughly population growth plus Wage Price Index growth), it is not credible, unless backed by explicit savings measures. More cost overruns will inevitably follow,” he said.

Herald Sun analysis of budget documents over the past decade revealed the Andrews-Allan government had consistently underestimated the cost of its government expenses.

Treasurer Jaclyn Symes and Victorian Premier Jacinta Allan. Picture: Diego Fedele

It meant on average the government has had to find an extra $1.8bn every year since it came to office to pay its public servants.

Mr Brennan said it was also vital spending growth was kept to similar levels to employee expenses.

And he also called for capital program expenditure to be reduced to about 1.7 per cent of Gross State Product, even if it meant slowing the rollout of the Suburban Rail Loop.

“Keeping the capital program at current levels is inconsistent with stabilising (let alone reducing) net debt,” he said.

Originally published as Former Victorian treasury official Michael Brennan calls for Jaclyn Symes to reduce investment in capital projects and cut spending