Victoria’s State Budget aims to solve two big problems, but could create one big headache too
Everyone looks set to get a prize in Treasurer Tim Pallas's State Budget.
It will be a Budget for the COVID era, loaded with deep debt and deficit, tax cuts and grants galore.
It will address two problems, providing aid for an economy and community shattered by the pandemic, and a chance for Premier Daniel Andrews to get a fresh grip on Victoria's political agenda.
But the eye-watering level of debt also creates a potential political headache.
But to build projects, pay for the tax cuts flagged by Pallas and fund new programs, the Government will plunge the Budget into the red and borrow big — net debt will climb to a staggering $154.8 billion in 2023-24.
The Government is not worried about these big numbers, confident that interest expense as a share of total revenue is more than manageable, averaging only 4.4 per cent of revenue per year over the forward estimates.
Borrowing big in a battered economy
A major challenge attached to the mounting debt is the political exposure, with Labor vulnerable to Liberal scare campaigns — especially if debt starts affecting services and taxes.
The Opposition will focus on the quality of the borrowing, worried about taxpayer wastage.
It argues debt cannot be used to pay for cost blowouts on major projects. Politically, the Opposition is right with voters often frustrated with government waste.
At the centre of Pallas's sixth budget is an attempt to solve the problem of a battered economy, with a focus on stimulus and assistance to a community smashed by COVID-19.
Victoria has been hit harder than any other state due to the deadly second wave caused by failures in hotel quarantine.
That debacle should be a political millstone around the neck of the Andrews Government, but its subsequent handling of the pandemic — while tough for Melburnians in particular — has proven successful.
Not a unique approach
The further easing of restrictions and more than three weeks without a single COVID-19 case has helped Andrews's star rise once again, despite some angry critics.
"We recognise that we're not through the worst of the economic event at the moment,'' Pallas told the ABC this week.
Polling shows the Premier enjoying two-thirds approval and the Coalition Opposition in disarray, the Liberal leader failing to cut through, with some voters unhappy with a perceived undermining of the public health messages.
Despite this, it is the state of the economy over the next two years that is likely to determine the Government's fate in 2022.
Unemployment sits at 7.4 per cent and underemployment is even higher. Work is a pivotal issue.
Should unemployment stagnate or get worse in the COVID-19 recovery, Andrews could be judged harshly — it's why there's so much focus on stimulus and job creation in Tuesday's Budget.
Andrews and Labor are taking a calculated approach, following the Federal Government and other states to borrow to tackle the economic crisis. Victoria's approach is hardly unique.
It is likely to provide another sugar hit for Labor and lay the foundations for its re-election campaign in 2022.
Taking control of the narrative
Never one to waste a crisis, the pandemic presents the opportunity for Andrews and his team to borrow and spend big on projects and programs that might otherwise miss out in a more austere environment.
It allows the Premier to continue to recapture the political agenda and steer it away from the problems he has endured.
But the strategy presents some basic political questions about how Victorians will pay off the debt.
The Government argues that much of the borrowing is "good debt" money being spent on projects and initiatives that will boost productivity and the economy for future generations — $50 billion was already being borrowed before the crisis to pay for projects.
But not all debt in this Budget is for projects. There is funding for programs that will require ongoing cash, and Treasury cannot simply borrow every year to fund recurrent spending.
Mental health is getting an $870 million boost but, as mental health expert and advocate Pat McGorry said, that's just a "stepping stone".
When the royal commission hands down its final report next February, there'll be even more work to do and even more programs to fund.
A mental health levy has been flagged, which may be unpalatable if the economy hasn't rebounded.
Drawing a line under a stinker of a year
There will be tax cuts in this Budget, another sign that the Government is pulling out all financial stops to reset the Victorian economy.
Political researchers noticed higher than normal public engagement with the Federal Budget.
Josh Frydenberg's Budget was also big on borrowing, relief and stimulus. It has been well received.
The Pallas Budget follows a similar theme.
Like for many of us, 2020 has been a stinker for the Andrews Government. But the Budget and the coronavirus containment right now have the Premier in a strong position.
The Government must be scrutinised and held to account for the dreadful failures of hotel quarantine, and the final findings of the Coate inquiry in December could make for tough reading.
Conveniently, they will be released just before Christmas and summer holidays.
Accountability is critical but the big Budget promises to ease the financial strain and is likely to help the Premier forge ahead — especially as Victorians enjoy a relatively free summer.