Paying down debt shifts further to the future for Victoria

Victoria will struggle to cope with record debt and future economic shocks that both major parties failed to properly address during the November election campaign, the Parliamentary Budget Office has warned.

In a post-election report released on Wednesday, two months after the state election that returned Daniel Andrews as premier, the independent office said Labor and the Liberals had proposed to make “relatively modest reductions” to forecast net debt.

Treasurer Tim Pallas.Credit:Nine

Net debt is expected to reach a record $166 billion by 2025-26, or a 24.6 per cent share of the economy. That is 50 per cent higher than in any other state in the country, no matter which party formed government, the PBO said.

“Future governments will have reduced capacity to respond to economic shocks,” the report warned. “The likelihood of paying debt down is shifting further into the future.”

The platform of the Liberals and Nationals would have decreased net debt by about 10 times more than the Andrews government.

Compared with the May state budget, net debt under a Coalition government would have been 6.2 per cent, or $10.36 billion, lower by June 2026, the PBO report said. Labor expects to improve the forecast net debt by just 0.6 per cent, or $982.1 million.

Opposition Leader John Pesutto.Credit:Luis Enrique Ascui

“We expect that the election platforms of both major parties would reinforce the larger and likely enduring net debt burden for Victoria,” the report said.

Treasurer Tim Pallas said he still expected to have an operating surplus by 2025-26 to start paying down the debt, despite higher interest repayments.

“We’ve demonstrated we can do the job of budget repair and debt management,” Pallas said on Wednesday. “There’s no magic or silver bullet solution to the hard work of making sure we grow the economy and create jobs. We’ve got an outstanding record.”

Both major parties planned to raid billions from the state’s rainy day fund, designed to protect the budget from economic shocks and unforeseen events.

The Coalition also proposed paying debt by drawing down from the Future Fund, which Pallas said was not actually accessible and blew a hole in the opposition’s numbers.

A Coalition government would have privatised parts of the Victorian sewerage system in a 50-year lease, which Opposition Leader John Pesutto described on Wednesday as a sensible measure while debt was “spiralling out of control”.

Shadow treasurer Brad Rowswell said debt, taxes and interest expenses would be worse under the Labor government.

“Victorians managing their own household budgets would not manage them like this, with debt out of control,” Rowswell said.

Labor and the opposition both provided their full costings two days before the November 26 election, when almost 2 million Victorians had already cast their votes.

Labor’s platform was independently checked by the state Treasury, while the Coalition used the PBO.

The Coalition called on Labor to use the PBO to cost its election commitments in future rather than using public servants at the Department of Treasury and Finance.

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