State Debt Growth Trajectory
The recently announced Victorian budget for the years 2024 to 2025 has raised concerns regarding the state’s growing debt. Treasurer Tim Pallas presented a projected debt of $187.8 billion (US$124 billion) by the 2028 financial year, leading to criticism from Liberal Opposition Leader John Pesutto over what he calls the incumbent Labor government’s financial mismanagement.
According to the budget papers, the state’s debt is expected to rise from $156.2 billion in the 2025 financial year to $169.2 billion in the following year and $179.2 billion in the 2027 financial year. Net debt as a percentage of gross state product (GSP) is projected to be 24.5 percent in 2025, increasing to 25.2 percent in 2026-2027, and then falling slightly to 25.1 percent by 2027-2028.
The interest expense in the budget is estimated to average 7.8 percent per year over the budget and forward estimates. The government’s fiscal strategy aims to stabilize net debt as a percentage of GSP by progressively improving operating cash flow surpluses and reducing reliance on borrowings. The budget also forecasts operating surpluses of $1.5 billion in 2025-2026 and $1.6 billion in 2026-2027.
Opposition Leader John Pesutto claims that the budget reflects a decade of financial mismanagement by the Labor government. He highlights record debt, interest, taxes, service cuts, and poorer outcomes as evidence that “Labor cannot manage money.” Pesutto criticizes the government for prioritizing a $216 billion train line for Melbourne’s southeastern and eastern suburbs while making cuts to health, education, disability, housing, and basic community infrastructure projects.
Treasurer Tim Pallas, however, argues that the budget is focused on fiscal discipline and making sensible decisions in response to inflation, workforce shortages, and other challenges. He acknowledges the impact of inflation on the economy and families, citing a 22 percent increase in construction costs since 2021 due to rising prices of materials, labor, and transportation. Pallas emphasizes the need for clear-headed decisions in the face of challenging economic times.
The budget papers assert that Victoria’s finances will be managed responsibly to fund services, infrastructure, and support for households and businesses. The government aims to improve public services and steadily enhance public infrastructure over time. It states that the Victorian economy continues to grow, with historically low unemployment levels of 4 percent.
However, Shadow Treasurer Brad Rowswell argues that the budget reveals a pattern of increased taxation, excessive spending, and reduced delivery. He claims that Premier Jacinta Allan’s first budget fails to address the waste, mismanagement, higher taxes, and higher debt of the past decade.
In an effort to assist Victorian families, the government has introduced a $400 payment for 700,000 students in public schools. This payment will also be provided to concession cardholders at non-government schools in term four of 2024. The school saving bonus aims to alleviate the cost of living pressures by helping students with expenses such as uniforms, camps, excursions, and sporting events. Families with three children can expect to receive a $1,200 handout to spend on school costs, either as a credit or vouchers.
Premier Jacinta Allan highlights the government’s commitment to supporting Victorian families through initiatives like the school saving bonus. She emphasizes that no child should miss out on the opportunities provided by a quality education and that the bonus gives families the flexibility to use it on various educational expenses.
Overall, while the Victorian budget aims to address economic challenges and help families, concerns remain regarding the state’s growing debt and its long-term impact on the economy and future generations. It is essential for the government to strike a balance between fiscal discipline and necessary investments in infrastructure and public services.
