Ahead of the state election on November 26 our Victoria’s Agenda project has been asking readers and voters around the state what they want the parties to be focusing on – the issues that matter to the people on the ground.
Some of the concerns that have emerged – unprompted – have been practical, such as the appalling number of potholes in country roads; others have been broader, such as access to healthcare and the state’s efforts to combat global warming. Many of those asked for their views have also been concerned about the shape of the state’s finances.
An artist’s impression of a proposed elevated rail station at Melbourne Airport when a new link to the CBD is built.
In a poll carried out for The Age in August by Resolve, managing Victoria’s economy emerged as one of the chief issues, with those canvassed particularly focused on project mismanagement, cost over-runs and the state’s ballooning debt.
These are not unfounded fears. Victoria has the highest amount of debt of all the states, growing almost exponentially from a shade under $12 billion in 2010-11 to a figure predicted by the government itself to top $165 billion by 2025-26.
As Josh Gordon explains today, this is partly because the Andrews government rapidly increased borrowing to insulate Victoria from the pandemic, but it is also fuelled by its appetite for vast infrastructure projects.
The government argues that such borrowing boosts jobs and business activity, which in turn increases government revenue, which can eventually go to pay back the borrowed money that started the cycle. “You grow your economy, and the consequence of that is your capacity to service the debt massively increases,” says Treasurer Tim Pallas, who believes we will see an operating surplus in 2025-26.
Yet this is not a strategy without risk. If the economy fails to grow as hoped – if we plunge into recession, not an unlikely scenario – the expected surplus will take longer to emerge, if ever. Rising interest rates will make servicing our debt more costly. Creating more jobs in a time of record employment levels will increase pressure on wages and, as a result, inflation.
Estimating final costs for major infrastructure is famously gelatinous. Infrastructure Australia has advised work on the Airport Rail Link be delayed “to improve certainty of the cost estimates”. In 2018, Daniel Andrews told us the Suburban Rail Loop project would cost $50 billion. In August, the Parliamentary Budget Office estimated that the first two phases alone could blow out to $125 billion.
“The two biggest risk factors for cost overruns are premature announcements and large project size, with the Suburban Rail Loop an extreme case of both,” Marion Terrill, transport and cities program director at the Grattan Institute, told the Australian Financial Review. Former Premier Jeff Kennett told this masthead he was “terribly concerned” that state debt was again out of control.
Kennett’s comments feed into attempts to wedge the government on debt, with Opposition Leader Matthew Guy committing to auditing all projects valued at more than $100 million to minimise waste if elected.
Yet both major parties are campaigning on a salad of spending promises. On day two of the campaign proper alone, Guy promised to halve the waiting list for dental care by giving 32,000 people $500 vouchers to go private – $16 million – while Andrews pledged $44 million for eight PET scanners.
At last count Victoria’s Parliamentary Budget Office logged 59 announcements from the Liberals and Nationals with no estimated cost, and 222 that were announced with funding, at a total cost of $25.7 billion. Labor had two commitments without funding, and 81 with funding worth a total $8.3 billion.
So when you hear yet another funding pledge consider how badly we really need it. Is the social good that will come from it overwhelmingly persuasive? For everything we buy today will add to our ever-growing debt. And like that unpleasant post-Christmas credit card statement, it’s a bill that will one day come due.
Michael Bachelard sends an exclusive newsletter to subscribers each week. Sign up to receive his Note from the Editor.
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