Victorian economy a giant “pyramid scheme”

Data from the Australian Bureau of Statistics shows that Victoria’s gross household disposable income per person was $52,488 in 2021-22, which is the second-lowest among the states and territories.

Victoria’s gross household disposable income per person had been ranked fourth in 1999, and reached the third-highest in the early 2000s.

Former federal Treasury economist Stephen Anthony says the state government has overseen a “pyramid scheme” built on high debt; he says it is very clear that Premier Daniel Andrews has destroyed living standards and been “fiscally profligate”.

Victoria’s net debt is forecast to rise to $166 billion in 2025-26, which equates to 24.6% of the state’s economy.

From The AFR:

Melbourne-based former federal Treasury economist Stephen Anthony said the Andrews government had overseen a “pyramid scheme” built on high debt.

“For anyone who is interested in evidence, it’s very clear this premier has destroyed living standards and been fiscally profligate,” Mr Anthony said.

“Victoria is regressing and pretty soon we’ll be below South Australia as well”…

Household gross disposable income per capita is a proxy for living standards…

“The largest increase in net debt, the highest projected level, and the largest net operating deficit are all in Victoria,” says a report by the Centre for Independent Studies senior fellow Robert Carling.

For years I have lambasted Victoria’s ponzi economy, which relied far too much on extreme immigration-fueled population increases to drive growth. This was always unsustainable and delivered falling living standards for incumbent residents in the pre-COVID years.

Anyone disputing these facts only needs to look at the below charts showing Victoria’s sluggish export growth, booming imports, and its sharply deteriorated trade balance:

This rampant population growth has created all manner of problems for Melbournians, from crushing infrastructure and congestion to deteriorating housing affordability and quality. Importantly, it has also masked the poor performance of the Victorian economy.

As noted by Stephen Anthony last year, Victoria’s “population Ponzi scheme followed by a bloated building boom has left a nightmare of high debt and high taxes” for Victorians:

For a decade or more, Victorian governments have relied on one singular growth driver – population…

So why have successive Victorian state treasurers engaged in this population Ponzi scheme? It sure beats working for a living (also known as real policy reform). Big population growth generates momentum for construction (effectively a Clayton’s industry policy), fuels property prices, which benefits existing owners (both householders and institutional investors).

The strategy is embraced by the powerful property lobby and key unions. It garners big revenue windfalls from stamp duties and land taxes and delivers a bigger tax take. All this with no tough decisions and courage required.

Victoria’s decline began when the Howard government ramped up the temporary visa migration program after the Work Choices defeat…

Regrettably, this approach became a permanent policy setting. It held down real wages and helped to crimp productivity growth via the Uber-isation of the low-skilled labour force.

An economic model based on mass immigration is a dumb economy. It places headline growth ahead of improving productivity, sustainability and per capita living standards. In Victoria’s case, it also sucks financial resources from the other states in order to support its bulging population.

Curiously, those claiming that high immigration supports the federal budget by providing it with tax revenue always ignore the costs on state governments and citizens, as highlighted by Victoria.

Sadly, the Albanese Government has doubled-down on this dumb growth model, which will guarantee another ‘lost decade’ of living standards for Australians.