What has gone wrong with Victoria? Economically, there is no shortage of incriminating statistics. Victorian government spending has more than doubled in the decade since Daniel Andrews took power, increasing at almost twice the economy’s growth rate.
Meanwhile, with revenues falling far below spending, state government debt has grown by an eye-watering 319 per cent, outpacing the economy’s overall growth five times over.
The result is that per capita public debt now stands at $28,000 per man, woman and child – 40 per cent higher than that of the other major states. But measured in terms of per capita disposable income, Victoria is the third poorest state in the country.
That combination of relatively high debt and relatively low disposable income is toxic. And the outlook doesn’t make the picture any prettier.
In effect, productivity in Victoria (how much output its workers and enterprises produce per unit of capital and labour) is rising at less than one-third the rate in NSW. Private capital investment also is lagging badly, limiting the private sector’s long-term capacity to expand.
Together, those factors constrain the rate at which household incomes can rise – and they also mean the taxable base is growing more slowly in Victoria than in the other major states. The state is therefore in a situation where it must fund higher, and still rising, repayments on its debt out of lower, and only slowly growing, incomes.
With investors jittery about the state’s financial viability, interest rates on Victoria’s public debt have been pushed to the point where they are almost one percentage point above the 10-year commonwealth bond rate and are the major states’ highest.
The higher rates have increased debt servicing costs by more than $1bn each year, with the Victorian budget papers predicting that interest payments will more than double from 3.8 per cent of state revenues in 2019-20 to 8.8 per cent in 2027-28.
And those forecasts look unduly rosy: even excluding the two Covid years, the budget has got the fiscal outturn wrong by $5bn a year since 2014-15, with promised surpluses turning out to be lower and deficits higher, adding to debt, interest payments and pressure on rates.
Sure, the government, which shows little sign of cutting spending, could impose further tax hikes, as it already has done on property and much else. But that would merely roil an underperforming economy that only now is recovering from a massive slump in housing starts in 2022 and 2023.
Moreover, Victoria’s taxation levels are already well above the other major states, making additional hikes even more harmful.
In short, the state is, at best, trapped in stagnation, forcing it to cover falling private investment and expenditure with ever greater public largesse. And at worst it faces a Greek scenario: as the spending and debt build-up sets off the alarms, a vicious spiral is triggered in which nervous investors demand even higher rates, increasing debt service costs and worsening the deficit. That blowout then compounds investors’ fears and provokes yet another round of interest rate rises – until the whole Ponzi scheme collapses.
Justsoover1t on
Most affordable city in Australia with lots of opportunities
47737373 on
Nothings gone wrong with Victoria. Victoria proudly has the most left leaning state government and Victorians are loving it, hence Labor has won all the elections since 2014 some in a landslide no less. We don’t want anymore of that LNP rabble thanks
CamperStacker on
Ultimately the problem with victoria is just the classic economic socialist problem: You can’t spend other people’s money on other people as effectively as people can spend their own money on themselves.
They have expanded government faster than the economy is growing, which just means an overall less efficient economy.
They need to slow down and *gasp* wind back or privatise the non efficient.
justnigel on
“Eyewatering”??? This is not an objective report. It is a partisan opposition piece trying to make people fear the government that is actually investing in infrastructure and providing services that people want.
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What has gone wrong with Victoria? Economically, there is no shortage of incriminating statistics. Victorian government spending has more than doubled in the decade since Daniel Andrews took power, increasing at almost twice the economy’s growth rate.
Meanwhile, with revenues falling far below spending, state government debt has grown by an eye-watering 319 per cent, outpacing the economy’s overall growth five times over.
The result is that per capita public debt now stands at $28,000 per man, woman and child – 40 per cent higher than that of the other major states. But measured in terms of per capita disposable income, Victoria is the third poorest state in the country.
That combination of relatively high debt and relatively low disposable income is toxic. And the outlook doesn’t make the picture any prettier.
In effect, productivity in Victoria (how much output its workers and enterprises produce per unit of capital and labour) is rising at less than one-third the rate in NSW. Private capital investment also is lagging badly, limiting the private sector’s long-term capacity to expand.
Together, those factors constrain the rate at which household incomes can rise – and they also mean the taxable base is growing more slowly in Victoria than in the other major states. The state is therefore in a situation where it must fund higher, and still rising, repayments on its debt out of lower, and only slowly growing, incomes.
With investors jittery about the state’s financial viability, interest rates on Victoria’s public debt have been pushed to the point where they are almost one percentage point above the 10-year commonwealth bond rate and are the major states’ highest.
The higher rates have increased debt servicing costs by more than $1bn each year, with the Victorian budget papers predicting that interest payments will more than double from 3.8 per cent of state revenues in 2019-20 to 8.8 per cent in 2027-28.
And those forecasts look unduly rosy: even excluding the two Covid years, the budget has got the fiscal outturn wrong by $5bn a year since 2014-15, with promised surpluses turning out to be lower and deficits higher, adding to debt, interest payments and pressure on rates.
Sure, the government, which shows little sign of cutting spending, could impose further tax hikes, as it already has done on property and much else. But that would merely roil an underperforming economy that only now is recovering from a massive slump in housing starts in 2022 and 2023.
Moreover, Victoria’s taxation levels are already well above the other major states, making additional hikes even more harmful.
In short, the state is, at best, trapped in stagnation, forcing it to cover falling private investment and expenditure with ever greater public largesse. And at worst it faces a Greek scenario: as the spending and debt build-up sets off the alarms, a vicious spiral is triggered in which nervous investors demand even higher rates, increasing debt service costs and worsening the deficit. That blowout then compounds investors’ fears and provokes yet another round of interest rate rises – until the whole Ponzi scheme collapses.
Most affordable city in Australia with lots of opportunities
Nothings gone wrong with Victoria. Victoria proudly has the most left leaning state government and Victorians are loving it, hence Labor has won all the elections since 2014 some in a landslide no less. We don’t want anymore of that LNP rabble thanks
Ultimately the problem with victoria is just the classic economic socialist problem: You can’t spend other people’s money on other people as effectively as people can spend their own money on themselves.
They have expanded government faster than the economy is growing, which just means an overall less efficient economy.
They need to slow down and *gasp* wind back or privatise the non efficient.
“Eyewatering”??? This is not an objective report. It is a partisan opposition piece trying to make people fear the government that is actually investing in infrastructure and providing services that people want.