By Ken Atchison, Principal, Atchison Consultants
The extraordinary growth in Victorian Government debt will continue as a result of the failures of the Andrews Government in its management of hotel quarantine and contact tracing, as well as its unreasonably long lockdown. A loss of Victoria’s AAA credit rating is imminent. This is a clear indication of poor financial management by the Andrews Government.
Businesses are failing. Small Business Australia has stated that more than 200,000 businesses will close. A transfer of businesses to other states is already underway. 400,000 people are expected to become unemployed, greater than 10% of the Victorian workforce. A brutal fall in Victorian business activity or Gross State Product (GSP) of 5.0% in both 2020/21 and 2021/22 is forecast.
Servicing of Victoria’s debt will require increased revenue in the form of higher taxes or reduced government spending. This can be achieved through reduced services or fewer public servants. Alternatively, even more debt will be incurred. This will transfer more of the debt servicing to the younger generation to pay the price of mismanagement today.
Victoria’s state government revenue will fall by $5.5 billion or 8.0% in 2020/21, with no revenue growth expected in 2021/2022. Transfers from Commonwealth Government will fall by 5.0% in 2020/21 as GST collections collapse. However, there is some chance economic recoveries in other Australian states will mean their GST collections end up subsidising Victoria.
Expenditure by the Victorian Government has increased through medical, hospital and coronavirus-related costs. It has also increased as a consequence of business failure, unemployment and public service salaries. Expenses grew by $6 billion in 2019/2020 and total expenditures will stay at that inflated level in 2020/21 and 2021/22 even as the private sector recovers. Budget deficits of $10 billion are projected for the next two years.
Net Victorian Government debt was $44 billion in June 2020. In the 2019/2020 budget, the debt had been expected to increase by $30 billion by 2023. It is now projected to increase by $50 – $60 billion over this period. In per capita terms, debt per person will grow from $5,750 in June 2014 to prospectively $15,500 in June 2023. This assumes that the forecasts of a decline in population are not realised.