Earlier this year, former federal Treasury official Stephen Anthony warned that Victoria may ultimately require a federal “bailout” amid soaring state debt, which hit $27,729 per person in 2023-24.
“Victoria is on a suicide mission to record borrowing, just as global interest rates are about to hit 5%”, Anthony warned.
“Potholes can’t get filled, emergency departments can’t afford clean linen, primary schools can’t fix heaters”.
“Things are about to get very ugly”, he said.
Independent economist Saul Eslake says the Victorian government’s latest financial report shows that the state’s finances are “slightly less worse” than were forecast in the budget on 10 May but were “in no sense good”.
Eslake noted that the $411 million improvement in the state’s operating balance was solely due to increased federal grants, which were not guaranteed to be repeated. He added that the Victorian government still needs to spend less money or increase revenue from taxes.
“Arguably, excessive infrastructure spending is one of the main reasons why Victoria is in the financial mess it is”, Eslake said.
Victoria has the highest state debt and worst (AA) credit rating in the nation. Ratings agencies S&P and Moody’s have also warned that Victoria faces further downgrades if it does not get its debt situation under control.
The federal government has already effectively bailed out Victoria by handing it $3.8 billion in additional GST revenue in 2024-25, whereas New South Wales lost $188 million.
As mentioned above by Saul Eslake, Victoria also received an additional $411 million in grants from the Commonwealth.
The Victorian Budget stated that it expects the federal government to provide “a matching contribution” to the first stage of its Suburban Rail Loop (SRL) boondoggle, which it signed the contracts to build against the explicit advice of infrastructure experts.
Source: Victorian Budget 2023-24
Thus, it appears that all Australian taxpayers are on the hook for the Victorian government’s financial mismanagement.
The Victorian government probably knows this, which is why it is happy to undertake costly projects knowing full well that the costs will be transferred to the federal government.
