Grim. Horror. Very tight. Tough.
These are just some of the public and private ways Labor ministers are describing next month’s Victorian budget.
This Labor government has been adept at expectation management in the past, but there’s a consensus that Tim Pallas’s 10th budget, due on May 7, will be different.
“There will have to be hard decisions in this budget, and there will be,” Pallas warned on Wednesday.
There are few easy options for Premier Jacinta Allan, who is confronted with a budget that needs to rein in spending to address ballooning state debt.
Net debt is set to hit $135.5 billion this year. By comparison, NSW’s debt is set to hit $94.8 billion.
Government spending will be cut with the government to axe jobs in an effort to avoid slugging Victorians more tax. Jobs and programs that were set up or expanded during the pandemic will not have funding renewed, and redundancies have already been outlined in some departments.
“I’m not going to amplify the challenges that I have managing our budgetary and our fiscal position by amplifying them onto households,” Pallas said.
“The way we will manage that is effectively by running a more efficient government and that will come at some level of challenge for existing expenditure right across government agencies.”
If households are forced to wear economic pain because of Labor’s fiscal management, it will severely dent Labor’s hopes of a fourth term in 2026.
The premier faces big decisions over taxes, what to cut and which infrastructure projects to slow down.
Her first budget as leader also gives her a small window to show Victorians what her priorities are, and that she is prepared to make tough calls.
Some Labor insiders concede that Team Allan is yet to define what her “political narrative” is, so this this budget is being framed with the premier’s agenda in mind.
“I think we’ll have some reasonably positive things to say to the people of Victoria,” the treasurer said on Wednesday.
The challenge is to forge a fresh path out of the shadow of Daniel Andrews, while holding on to the key parts of his agenda. It’s difficult.
“We’ve gone from Bon Scott to Brian Johnson but we are still AC/DC,” one senior figure said, to describe the change of leadership.
So, what can the government do without slugging voters?
Experts, Labor MPs and insiders agree the state has to slow its capital spending, so you can expect some major projects will be delayed.
Labor’s Big Build, while initially politically popular, has created problems.
The magnitude of government works has overheated the construction sector and contributed to a rise in building costs due to a scarcity of materials and competition for labour.
David Hayward, emeritus professor of public policy at RMIT University, said the government had failed to make hard decisions during last year’s budget.
“Will the premier do the right thing and slow down spending? Or does she want to keep running around opening things with the yellow hat on?” Hayward asked.
Slowing down infrastructure spending by delaying some projects, he said, would reduce debt as a proportion of the state’s economy and critically free up workers to build new homes.
Remember, the state wants to build an extra 80,000 homes a year — a target few in the sector believe can be met.
Earlier this year, Pallas got a big windfall from Canberra, with an extra $3.7 billion from the commonwealth in GST payments, after Victoria’s slice of that tax pie was increased.
That extra cash should help deliver a surplus next year.
But debt will remain a political weight in Labor’s saddlebag, and unless the government gets its spending under control, Victoria’s credit rating could take another hit – it’s already at AA, according to S&P Global Ratings.
The agency’s director of government ratings, Anthony Walker, said a return to cash surplus was important and hinted that without a substantial change in fiscal management another rating cut could be on the cards.
“Since the pandemic, the government’s been funding its operating position, which is doctors, teachers, nurses, etc, through debt. And that’s unsustainable,” he said.
To combat debt in recent years the government has upped taxes, including on property and payroll as well as private schools.
“We’re not expecting any tax relief,” Mr Walker said.
“This government has been very clear that it is going to tax investment, it is going to tax business, we have seen a number of new taxes across those which is probably weakening the property market in Victoria.”
Victoria’s property market, due to higher taxes, is weaker than in other states, Mr Walker said.
So why does Victoria have so much debt?
On the eve of the 2014 Victorian election, Treasury’s official budget update showed the state’s debt under the Napthine Coalition government was $21.8 billion and it was forecast to drop to $19.8 billion in three years’ time.
The Coalition lost that election after just one term in office, beginning 12 years of unbroken Labor rule. It also led to an explosion in Victoria’s debt.
The most recent budget update shows Victoria’s net debt will be $135.5 billion this year, rising to $177.8 billion in 2026-27.
Much of this accumulation has been to fund a myriad of infrastructure projects: The Metro Tunnel, level crossing removals, schools and hospitals to name but a few.
In 2014, the Napthine government was spending just $5.8 billion on infrastructure – this year the Allan/Andrews government is spending $22.3 billion.
In the eyes of this Labor government it’s productive debt, a view shared by many experts.
Shadow Treasurer Brad Rowswell said the government needed to live within its means. This budget is a big test.
“If the government is bold enough to admit that we can’t afford the Commonwealth Games, why can’t they make that same admission with some of their big build projects?” Rowswell asked.
“I genuinely think Victorians, given the state of the budget after 10 years of Labor, would be understanding of a government bold enough to acknowledge that not everything can be done all at once.”
Within the state’s total debt is $31.5 billion owed from the pandemic. The government used its credit card to keep the economy afloat while the state was forced into successive and frequent lockdowns.
The government is making efforts to repay this portion of the debt, including a swag of levies on business outlined in last year’s budget.
Pallas and Allan will want to find something good to hang their hat on. Part of that will be making tough economic management a virtue, including cutting public servants.
It will also be looking for some type of sweetener, most likely some cost-of-living relief to convince voters it’s on their side.
So perhaps we’ll get yet another round of the power saving bonus, the $250 payment for comparing powers on a government website.
But as the treasurer often says, you’ll have to wait until the budget.
Source: ABC News
The business case for North East Link was marginal in 2018, before costs blew out by $10 billion. Phony time-saving benefits will not save it: the State Government needs to cut its losses. It’s still not too late to ditch it. See also ’sunk cost fallacy’.