Victorians brace for the fiscal fallout of controversial pandemic management as government prepares to unveil the State’s latest budget.
As the dust settles from the pandemic, Victorians are bracing themselves for the fiscal consequences of the Dan Andrews government’s controversial COVID-19 response.
Treasurer Tim Pallas is set to reveal a comprehensive $31.5 billion “COVID-19 Debt Repayment Plan” in Tuesday’s state budget, as part of an ambitious strategy to repay emergency funds borrowed during the State’s controversial lockdowns.
Expected to encompass a mix of savings and revenue-generating initiatives, this plan marks Pallas’ ninth budget and arguably his most challenging yet, amid rising interest rates that exceed initial projections.
The forthcoming budget will differentiate between “emergency” debt – funds leveraged to bolster the health system and sustain the economy – and loans channelled into the State’s expansive infrastructure programme.
The Andrews government hopes the forthcoming strategy will assure credit rating agencies of its commitment to re-stabilising its financial footing and mitigating the risk of debt spiralling out of control.
Amid the controversy surrounding the increasing debt and its associated cost, the government has sought to shift responsibility towards the Reserve Bank, which has hiked the official cash rate eleven times within the past year.
According to an anonymous senior government official privy to confidential national cabinet discussions, during Australia’s most controversial period of the pandemic, Reserve Bank Governor Phillip Lowe reassured State leaders that he would “never endorse an interest hike” throughout his seven-year term.
Lowe attended multiple national cabinet meetings throughout the crisis, alongside Federal Treasury Secretary Steven Kennedy, advising on the potential fiscal and monetary impacts of the pandemic.
The source stated Lowe firmly advocated for Victoria to borrow and spend to avert a potential surge in long-term unemployment, potentially leaving indelible marks on the State.
Lowe’s public stance on interest rates aligns with the alleged comments, having expressed confidence back in February 2021 that interest rates would remain steady until 2024, anticipating a return of inflation within the Reserve’s target range of 2-3%.
However, the tightening of monetary policy since the previous Victorian budget implies that by 2025, approximately 8 cents of every dollar raised by the government will be channelled into interest repayments.
Victoria’s financial health has been somewhat protected from the brunt of rising rates thanks to the Treasury Corporation of Victoria (TCV). The TCV embarked on an unconventional route, issuing long-term government bonds of up to 30 years during periods of near-zero cash rates.
Facing the impending task of refinancing nearly $5.5 billion worth of borrowing this year, increasing to $8.2 billion in 2023-24, and $9.2 billion the following year, the TCV’s strategy has reassured market experts. “The people who manage that debt are very competent,” noted interest rate strategist Martin Whetton.
Despite Victoria’s lower credit rating compared to other states, the government bond market remains resilient. The TCV continues to sell about $2 billion of Victorian government bonds per week. Yarra Capital Management’s co-head of Australian fixed-income, Darren Langer, said, “They are not having trouble raising money.”
Still, as the state’s total borrowings reach a staggering $140 billion, experts, government officials, and observers alike are closely watching Victoria’s fiscal measures in the coming budget.
The Andrews government’s steps to tackle the debt could shape Victoria’s financial future for decades to come. The stakes, as they say, are high.