‘Well Above Parity’: Australian State’s Debt to Double Its Annual Revenue by 2024-25

Victorian Treasurer Tim Pallas speaks to the media during a press conference in Melbourne, Australia on Nov. 23, 2020. Daniel Pockett/Getty Images

Victoria’s bank balance appears to be heading further into the red with gross debt levels predicted to exceed the state’s consolidated revenue by at least double in three years time, Victoria’s Auditor-General has found.

But state treasurer Tim Pallas maintains that “delivering responsible financial management” by prioritising employment, business and consumer confidence in the short-term is “appropriate” given the nature of the pandemic.

“This approach will have short-term costs to the State’s financial position, but over the longer term will result in a quicker and stronger economic recovery,” Pallas said.

Currently, the state government’s ability to service its debt sits at 128 percent of revenue, compared to 60 percent prior to the pandemic.

“[T]his measure of the government’s ability to service its debt is now well above parity,” Victoria’s Auditor-General Andrew Greaves wrote in the state’s annual financial report, which was tabled in Parliament on Nov. 17.

“The government estimates gross debt will exceed 200 per cent of consolidated revenue by 2024–25. This is over three times more than pre-pandemic levels.

“Revenue remained at levels below, and expenditure well above, pre-pandemic expectations, while debt grew.”

Victoria’s gross debt is predicted to reach just below $178 billion (US$129 billion) by 2024.

The report also found that the general government sector (GGS)—a group of government agencies that provide the state’s public services—operated at a net deficit of $14.6 billion for the 2020-21 financial year. However, $11.7 billion of this amount was linked to the pandemic response, leaving $2.9 billion not directly linked to the pandemic.

“This shortfall increases the risk that underlying revenue and expenditure policy settings are not financially sustainable over the medium to long term,” Greaves wrote.

However, the $14.6 billion deficit was lower than the $17.4 billion (US$12.6 billion) expected when the budget (pdf) was released in May.

The report also found that revenue from casino gambling tax income, hospital and patient fee revenue, and income derived from traffic fines, were reduced during the pandemic—which indirectly impacted revenue.

Greaves identified financial risks in three areas: operation expenses in the general government sector, WorkCover claims, and construction works and noted that the government’s target of $4.3 billion (US$3.1 billion) in cost savings over four years would be difficult to achieve under current policy settings.

“Without structural reform, achieving the targeted reductions and maintaining current service levels will be difficult, since over one-third of the state’s operating expenses are on employees, and these costs are generally subject to annual increases included in enterprise bargaining agreements,” Greaves wrote.

In response to the Auditor-General’s report, shadow Treasurer David Davis said the Andrews government’s “eye-watering” deficit of $14.7 billion shows that much of the spending was being “mismanaged with project cost blowouts.”

“Despite the COVID hit, the Victorian government took more tax, from payroll, read employment, and 473 million dollars more in stamp duty,” Davis said in a media statement.

The news of the budget blowout follows an earlier report by the Victoria’s Auditor-General Office that found that while the government departments made “extraordinary efforts” to respond to COVID-19, “not all [Victorian government] departments effectively managed their spending leading to waste in some instances.”