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Victoria faces an added debt burden of $882.8 million as a result of the Andrews government policy to delay payments to the public service superannuation fund, analysis by the independent budget watchdog has found.
Victorian Treasurer Tim Pallas preparing to hand down the state budget in May.Credit: AAP
The opposition has seized on the Parliamentary Budget Office (PBO) analysis to accuse Labor of attempting to improve the short-term image of Victoria’s books at the expense of future taxpayers.
Treasurer Tim Pallas revealed before last November’s election the government would defer $3 billion worth of top-up payments to the closed defined benefits superannuation scheme for more than four years until June 2027.
But the decision means the government, which has committed to fully funding superannuation liabilities for public service employees in the closed scheme by 2035, will need to borrow more money later.
The PBO analysed the long-term impact of the policy at the request of Opposition Leader John Pesutto, estimating it would worsen net debt by $882.8 million by 2035 when the scheme should be fully funded.
“This change is driven by the increased borrowings that will be required by future Victorian governments to fund additional superannuation contributions from 1 July 2027 to 30 June 2035,” the analysis said.
“The higher investment is required to replace the lower returns resulting from lower superannuation asset balances over the life of the policy.”
Lost returns from the scheme were partially offset by a lower cumulative interest expense on government borrowings, the PBO said.
Shadow finance spokeswoman Jess Wilson said the Andrews government was kicking its super payments down the road.
“In a desperate effort to hide the true state of Victoria’s budget, the Andrews government is playing internal accounting games to deceive taxpayers and ratings agencies,” Wilson said.
“Delaying these payments was wrong and a blatantly political decision that has come at an enormous cost to Victorian households and businesses.”
Cleaning up the state’s finances has become a political priority and Labor in its May state budget introduced a $31.5 billion “COVID-19 debt repayment plan”. Treasury has forecast net debt to grow from about $135.4 billion next year to $171.4 billion by 2026-27.
Both major parties, releasing their election costings two days before the November election, proposed policies that would have made short-term improvements to the budget but which could cost taxpayers in the future.
The government’s decision to defer $3 billion worth of contributions to the super scheme does not stop public service workers receiving timely benefits.
The defined benefits scheme, which closed to new members in the 1990s, sets a defined amount of super a public service worker would receive in retirement.
The scheme, which remains unfunded, has relied on regular contributions from the state to ensure its liabilities are met by 2035. Top up payments from the government have previously averaged about $1 billion a year to reduce the liability from the current $17.461 billion, as forecast in the 2022 pre-election budget update.
Separate defined benefit schemes for emergency services were fully funded, Pallas said in November.
While the policy of delaying $3 billion worth of contributions would have a negative impact on the budget in the longer term by increasing net debt, the PBO said: “This overall effect is relatively small, compared to the annual movements, and could be significantly impacted by changes in these assumptions.”
The budget office said the estimate was sensitive to changes in assumptions for interest rates on government borrowings, interest and other returns on superannuation assets, and the breakdown of contributions to super assets to do its analysis.
A government spokesman said Victoria’s economy was in a strong position.
“Our fiscal plan is delivering the services that Victorians need and the projects that grow our state,” he said.
“There have never been more Victorians in work and our strategy as reported in the Budget papers is on track.”
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