With all eyes fixed on the federal election campaign, you’d be forgiven for nearly forgetting Victoria’s treasurer, Tim Pallas, is set to hand down a state budget in a couple of days.
So far, all we know is that health will be a main theme of the pre-election budget. Improving lengthy ambulance wait times, emergency department overcrowding and the state’s triple zero call-taking system are front of mind after several much-publicised deaths, including that of a 72-year-old man who waited more than three hours for a bed at a regional hospital earlier this month.
“It will be a very big budget for those basic services that make a massive difference to people’s lives,” premier Daniel Andrews said at a recent press conference.
“You’ll see short, medium and long-term investments in the budget that are about supporting our nurses, our ambos, our call takers to do more, to do better, and to provide the best care that we could possibly provide.”
In terms of pre-budget announcements, at the time of writing just $277.5m has been allocated – to combine the Victorian Certificate of Education and the Victorian Certificate of Applied Learning from next year.
By way of comparison, days out from last year’s budget, $4.2bn worth of spending and $2.7bn in new taxes had already been announced, as had the state’s deficit figure.
It’s not surprising the state government is holding off on any significant announcements during the federal election campaign, when it risks either being ignored or conflated with federal Labor.
But any spending will also inevitably lead to talk about the state’s debt and the government’s plans to pay it off.
Pallas is midway through his four-step fiscal strategy, first unveiled in 2020 as the state emerged from an extended lockdown after its second wave of Covid-19.
Step one – creating jobs, reducing unemployment and restoring economic growth – has largely been achieved, given the state unemployment stands at a low 4.2% and the workforce participation rate is high.
Step two – returning to an operating cash surplus – is also well on its way, with a $2.5bn cash surplus included in last year’s budget for 2022/23.
Steps three and four – returning to operating surpluses and stabilising debt levels – will probably be a priority in this year’s budget, particularly if the government wants to fend off any attacks from the opposition ahead of November’s poll.
Victoria carries the largest debt load of all the states and territories. As per the latest budget update, net debt is set to hit $104.5bn – or 21.1% of gross state product by June this year.
This is expected to grow to $162.7bn – or 27.9% – by 2024/25, $6.4bn more than initially forecast, largely due to additional government support during the third wave of Covid-19 in 2021.
Pallas has maintained the debt is manageable, citing low interest rates and the state’s swift recovery from the pandemic. This is despite concerns from ratings agencies Moody’s and S&P, who both downgraded the state’s AAA credit rating after the 2020/21 budget.
Interest expense as a share of total revenue is expected to average 5% a year over the budget and forward estimates. It will be interesting to see if this figure changes come Tuesday, given it’s all but guaranteed interest rates will rise.
So what will the government do? It’s unlikely it will introduce any new taxes to pay down the debt – especially in an election year, where cost of living remains chief among voters’ concerns.
Indeed, a policy to tax property developers in order to fund social housing was scrapped just 10 days after it was announced in February, partly due to concerns it handed the opposition a golden opportunity to target the government over housing affordability.
Earlier this month, Pallas said he was “not in the business of austerity” but seemed to flag possible cuts to the public service.
“I don’t believe that austerity is the way to economic growth. There are more efficient ways to spend. We’ve put in place arrangements such as base reviews on departmental spending … and we continue to be committed to making sure we run an efficient budget,” he said.
In 2019, the government outlined a plan to cut $1.7bn from state government department budgets, though it was largely put on hold due to the pandemic. Earlier this week, Pallas told The Age he was committed to the savings.
The Community and Public Sector Union maintains the public service is still playing catch up post-Covid, clearly in health, but also in areas such as child protection, justice, licensing and registration.
It’s easy to see – given the complexities of balancing Victoria’s budget and the likelihood that some will be unhappy come Tuesday afternoon – why the state government is happy with the attention being diverted elsewhere.
