Last year, former federal Treasury official Stephen Anthony warned that Victoria might require a federal “bailout” due to soaring state debt, which reached $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.
Victoria has the nation’s highest state debt and the lowest (AA) credit rating. Ratings agencies S&P and Moody’s warned that Victoria risks downgrades if it does not address its debt position.
The federal government has already bailed out Victoria by providing $3.8 billion in increased GST payments for 2024-25, while New South Wales lost $188 million.
Victoria also received an additional $411 million in grants from the Commonwealth.
The 2023-24 Victorian Budget explicitly stated that it expects the federal government to provide “a matching contribution” to the first stage of its Suburban Rail Loop (SRL) project, which it signed the contracts to build against the direct advice of infrastructure experts.
Source: Victorian Budget 2023-24
Federal Labor MPs this week accused Victorian Premier Jacinta Allan of ‘blackmailing’ the federal government over funds for the SRL.
It is understood that Allan is refusing to sign up for a federal funding deal for a broad range of infrastructure projects unless the federal government provides more money for the SRL.
The projects in question are believed to include upgrades to the Western Highway, and the federal Labor MPs believe that a deal on their funding would help federal Labor in the upcoming election.
The Albanese government has only committed $2.2 billion of funding, which was contingent on Victoria providing information to the federal infrastructure department and the independent assessor Infrastructure Australia.
The Australian National Audit Office stated that the business case to request federal funding lacked essential facts and used questionable methodologies to assess the SRL’s net benefits.
Infrastructure Minister Catherine King has repeatedly stated that the federal contribution to SRL East was capped at $2.2 billion.
The federal Labor MPs are worried that the unpopularity of the Allan government could cause federal Labor to lose several seats in Victoria at the upcoming election.
“In terms of short-term politics, there’s a screaming need to address infrastructure shortfalls in the outer suburbs. And it must be done for both political and moral reasons”, a federal Labor MP told The Australian Financial Review on the condition of anonymity.
“Victorian growth corridors are under immense pressure… So there needs to be urgent infrastructure investment”.
Federal Labor MPs should be concerned. Poll Bludger shows a 5.3% swing against Labor in Victoria, with swings in the other mainland states at 2.2% or less.
Victoria’s two-party preferred vote now favours the Coalition 50.5% to 49.5%.
If the federal government does provide more funding for the SRL, it will be another form of bailout for a wasteful project that should never have gone ahead.
