Pallas cuts up COVID credit card, but is it really to blame for budget blues?

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Victoria’s net debt was already expected to smash $55 billion this financial year, before the COVID-19 pandemic struck and the Reserve Bank aggressively raised the cash rate.

Treasurer Tim Pallas will on Tuesday hand down his ninth and most challenging budget, which will recommit to an operating surplus by 2025-26 when net debt is expected to peak at $165.9 billion.

Treasurer Tim Pallas with the 2023-24 state budget.Credit: AAP

Premier Daniel Andrews has been keen to blame the pandemic for forcing his government to borrow on the “COVID credit card”, which he has said did not grow the economy like “productive” debt to fund big builds.

But the 2019-20 budget forecast showed Victoria was projected to have net debt of $54.9 billion by this financial year, representing 10 per cent of gross state product. That same year’s budget forecast an operating surplus of $4.9 billion for this year.

Andrews inherited net debt of $21.7 billion when he was elected in 2014 before the Labor government doubled its self-imposed debt ceiling of 6 per cent of gross state product at the big-spending 2018 election to help fund its major projects.

While Victoria has since spent $35.8 billion on COVID-19, according the Department of Treasury Finance, that does not fully explain net debt reaching $116.1 billion by June 30.

Last year, the budget faced $5.8 billion worth of cost overruns on major projects and the Victorian Auditor-General’s Office said the cost of 91 projects grew by $11.2 billion since they were first budgeted.

Shadow finance spokeswoman Jess Wilson said waste on infrastructure projects was partly to blame for the state’s finances.

“We want to see some financial management going forward of major projects. We’ve seen cost blowout after cost blowout,” Wilson said on Monday.

The Sunday Age revealed Tuesday’s budget would seek to distinguish emergency debt from productive debt through a $31.5 billion COVID-19 debt repayment plan.

Pandemic-related spending listed by Treasury includes the “zero emissions bus fleet”, the “women in transport program”, the $250 power saving bonus, and a donation to the Good Friday appeal.

Shadow treasurer Brad Rowswell questioned the legitimacy of the pandemic expenses, and said it was a myth COVID-19 was to blame for the state’s debt.

“Part of it is COVID debt, but the vast majority of it is not COVID debt,” he said.

“We know that the Labor government will seek to blame anyone or anything they can for the budget position they have got us in … They will seek to blame COVID, they will seek to blame Phil Lowe, they will seek to blame the former Morrison government. What they need to do is actually take responsibility for the decisions they have made.”

Andrews has been keen to redirect some blame to the Reserve Bank of Australia, which hiked the cash rate 11 times in 12 months, ripping $400 million out of the budget in the first half of the financial year.

“I remember at national cabinet being told, ‘Go and borrow. If you don’t borrow, then we’re going to have 25 per cent unemployment, we’re not going to get through this, we will not survive this. And by the way – interest rates won’t be going up’,” Andrews told a press conference earlier this month.

Dr David Hayward, Emeritus Professor of Public Policy at RMIT University, said most people expected the government to spend big on COVID-19 to save lives and keep the economy afloat, and that infrastructure projects should deliver a dividend.

“But right now, this budget should be trying to turn the budget to an operating surplus more quickly.”

Deputy Premier Jacinta Allan on Monday said the budget would focus on paying down the debt, without hurting working families.

“We do recognise that the time has come to pay back that debt,” she said.

With Sumeyya Ilanbey

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