If Scott Morrison and Josh Frydenberg really want to pressure Dan Andrews to lift Victoria’s lockdown early, they’ve got a very big card they could play: financial support.
The Victorian budget and balance sheet is in more strife than any other Australian government because the pandemic has forced it to spend like never before as its revenues have plummeted.
And now the Morrison government is using the not-so-subtle pages of The Australian to loudly proclaim that Canberra is waiting for Dan Andrews to unveil Victoria’s fiscal plan to keep the private sector afloat.
Unfortunately, Victoria has very little capacity left in the tank.
Dan Andrews and Treasurer Tim Pallis have progressively blown the budget during their first five years in office, ramping up gross debt to a record $55 billion, even after raising $9.7 billion privatising the Port of Melbourne in 2015 and $2.9 billion selling off the land titles office in 2018.
They’re already battling massive cost over-runs on key projects like Transurban’s $6.7 billion West Gate Tunnel project, which could reportedly now cost up to $10 billion, and the $11 billion Metro Rail project.
After his landslide victory over the Liberals in 2018, Andrews was continuing to think big with contracts soon to be signed for the $16 billion North East Link and planning under way for the 90km Suburban Rail Loop that will take 25 years to build and cost more than $50 billion.
After making too many big infrastructure promises and failing to contain the size and cost of the public sector workforce, Victoria’s budget was already stretched before COVID hit so they have very little wriggle room to respond.
Victoria’s increasingly precarious public sector financial position is the strongest argument as to why the federal government should have had a seat at the table ahead of Sunday’s controversial announcement of extended lockdowns.
Canberra has been directly picking up the tab through programs such as JobKeeper, and is also providing direct financing support by greenlighting the Reserve Bank (RBA) to use its money-printing capacity to directly buy up Victorian bonds.
For instance, an RBA spreadsheet detailing monetary policy operations shows that the RBA bought Treasury Corporation of Victoria (TCV) bonds with a face value of $260 million in three transactions on May 6.
If the Reserve Bank suddenly announced that it was selling Victorian government bonds rather than buying them, the yield would quickly spike. If you believe in continuous disclosure, investors in Victorian government bonds are being poorly treated and denied basic information.
It is simply unacceptable that Andrews has delayed the state budget from May until October, when all 79 of Victoria’s councils have been forced to complete their normal budgeting processes by now.
No journalist has yet asked Andrews what Victoria’s monthly cash burn rate during lockdown is. That’s in stark contrast to Crown Resorts, which advised investors in April that it was burning $20 million to $30 million a month in cash while its gaming operations were closed.
The federal government’s centralised borrowing authority the Australian Office of Financial Management makes a public announcement with every bond tender and publishes total outstanding debt on its home page. It’s currently $775.6 billion.
Due to excellent real-time transparency, we already know that Monday’s $2 billion offer of nine year bonds cleared at a yield of 0.92% with 43 bids, 13 of which were successful for an average investment of $154 million.
Compare that with the TCV which has said nothing since an April 24 update when it warned that its 2020-21 borrowing requirement would be between $10 billion and $14 billion higher than the previously advised $10.2 billion.
Back in the early 1990s, Jeff Kennett and his treasurer Alan Stockdale were belly-aching about Labor’s $33 billion state debt and $18 billion unfunded superannuation liability, which triggered a famous double-downgrade by Moody’s shortly after Labor’s 1992 landslide defeat.
Now Kennett is writing columns in the Herald Sun predicting Victoria’s gross debt could hit $100 billion within two years.
The biggest mistake of the Cain-Kirner government was spending up big during the 1980s boom and leaving nothing in the tank for Paul Keating’s “recession we had to have”. Labor was forced to sell the State Bank of Victoria to the Commonwealth Bank (CBA) in a fire sale after its merchant banking subsidiary Tricontinental racked up almost $2 billion in losses. CBA shares were floated at $5.40 in late 1991 and closed last night at $66.79.
It was no surprise when Labor was turfed out in a landslide, ushering in the Kennett government with its dramatic austerity program which involved axing more than 100,000 Victorian public sector workers and privatising about $33 billion worth of state assets between 1992 and 1999.
This fixed both the budget and balance sheet but there is now nothing left to sell, save for the water sector and Victoria’s compulsory third party insurer the Transport Accident Commission.
Pallis has only occasionally features at the daily press conferences, and the premier himself, a long-time warrior from the Socialist Left faction, rarely mentions budgets or financing challenges as he makes announcements and deals with media questions.
It’s well beyond time for financial transparency to become front and centre in this debate. Victoria just doesn’t have the capacity to cope with the full costs of one of the world’s toughest lockdowns without significant federal support.
It would be useful if Stephen Mayne, in his enthusiasm for greater transparency from Mssrs Pallas and Andrews, acknowledged his own role in supporting Jeff Kennett when that Premier sold off the best part of $40billion in Victorian publicly owned assets during his terms of office in the 1990s.
Five premiers ago if I’m counting correctly.
Kennett, Bracks, Brumby, Ballieu, Napthine, Andrews.
In fact Kennett was not even a premier this century.
You’re grinding a rusted axe in an attempt to make it all shiny again so as to deflect from the debacle this Andrews government is presiding over.
I think Gerard’s comment is valid.
It is almost 30 years ago that Kennett sold up assets, introduced austerity, eg.reducing spending in Health (especially cutting almost 40% per head of population from mental health).
Since the removal of the Gold Standard and the floating of our currency had occurred by the ’90s, the neoliberal austerity approach was not needed.
Had there been a Federal Government, at the time, that understood the economic theory being followed was not adequate for the changed circumstances, the State debt could have been handled differently.
It is important to reference Kennett now because, as stated, he is writing a newspaper column commenting on the Victorian Debt levels. He still does not (want to) know he did not have to make the financial mistakes he made in the 1990s.
It is important that the Prime Minister, the Federal Treasurer and journalists learn that the same mistakes now do not have to be made and they can all ‘back off’ the unhelpful ‘out of date’ Economic Commentary.
Gerard, not sure I was supporting Jeff Kennett when blowing the whistle about his dodgy share dealings on 4 Corners in 1997. I did 18 months of spindoctoring and was back in the media by June 1994, before any of the major privatisations occurred. Also, it was about $33b not $40b.
I’m all for more transparency, but there is nothing here to justify the assertion that Victorian government debt is out of control, they are blowing up the budget etc. While debt is so cheap, why not borrow and invest in productive infrastructure, that will return far more than it costs? Throwing around very large sounding numbers like $100b is classic journalistic scare mongering, and not worthy of you or Crikey. Why not invite Emma Alberici to write a more comprehensive story about the state of Government finances in Victoria?
What is the actual point of this article? What is the alternative? Let people get an illness that can potentially permanently disable them and not provide support to businesses. What is the point of AAA if business go bust and there are no services for people who need them which is what happened during the Kennett era!
Skip over to the Eureka Report (which Stephen also writes for) and Alan Kohler is advocating for MMT and how government debt isn’t a problem because interest rates are practically 0%.
The reason the health system is still stuffed is because of the legacy of the Kennett era. The reason why the Vic Govt now has to invest so much in infrastructure is because barely anything was done or just shut down during the Kennett and Napthine/Baillieu eras.
That’s a lot of time and investments to make up for. The rail link to Monash Uni was needed 20+ years ago for example.
Again, another article by Crikey pouring scorn on the Vic Govt with no options, solutions or alternatives other than a screeching endorsement of bad policies and bad governments.
Please stop waffling about Jeff Kennett. He was an idiot, but Andrews makes him look like Einstein.
Jeff Kennett was so 4 premiers ago.
Kennett is not an idiot, that implies somebody who doesn’t know what they are doing. Kennett knew exactly what he was doing and Victoria still suffers today because of him, hence why contributors here are still going on about him.
And as the current premier tries to cope with all the gaps left by Kennett and not repaired by the subsequent premiers, all you can do is say he needs to fix it.
Dan Andrews can’t cope, he is hopelessly out of his league. And he does need to fix it, he put his hand up for the job, threw his hat into the ring, so to speak. Perhaps you can blame the last government, but not the one five governments ago. Might as well blame William Haines the first premier of Victoria in 1857.
I must have missed your bipartisan condemnation of the Federal Budget being delayed until October. Or is it one rule for Daniel Andrews and quite another for Scott Morrison?
Interesting. So Stephen Mayne is proposing that Scotty from Marketing and Little Josh might be prepared to actually take responsibility for something. Really! Let there be no doubt. None. Every death after any idiotic, forced expansion of infection opportunities (because that is what Mayne is actually lobbying for) will be shafted home to them. Personally. Every death. Neither of them, nor Colbeck, nor Roger have been prepared so far to even be seen to have been in the room when decisions were made that have led to the deaths of hundreds of Aged Care residents and the degradation of lives in Disability Care. And we won’t mention their “look over there at that shiny thing” response to RoboDebt.
Good luck with that. Although it would be good to see a sliver of leadership from them.
It should also be kept in mind, front and centre, that one of the key issues with Victoria’s virus response has been the hollowed out public health system that successive governments could not repair sufficiently after Jeff Kennett, with Mayne’s enthusiastic support, ripped it to shreds with vapid calls for ‘efficiency’ instead of resilience. “Fixing” the budget and balance sheet just shifted the financial costs off balance sheet and increased then significantly. (Something that Mayne opposes in corporates, but obviously not here.) The Victorian government’s costs in relation to power have fallen dramatically, but the cost to Victorians has gone through the roof. Brilliant decision! In health care and related, the cost has been via rationing, loss of access, capacity and resilience. Looks OK to Mayne because he only sees today’s pure dollar costs, but a massive impost on the people of Victoria. Mainly thanks to Kennett.
Long term consequences of short term policy decisions.
Quite a few people waffling on about Jeff Kennett on this site.
As if it somehow deflects from the actions of our current Premier.
“Scotty from Marketing” just happens to be the PM of this country, and “Little Josh” just happens to be the treasurer.
Can’t take you seriously if all you’ve got are silly little names.
Same for “Dan the Dictator” and all that mob.
These people are leaders and are prime ministers, treasurers and Premiers, and they must be held accountable, no matter what political stripe.
…..unless it’s federal rorting at Victoria’s expense ?
Scotty is doing something. The invasion force from Townsville leaves tomorrow to invade (perhaps that should be save) Victoria.
Don’t tell the Chinese all our troops are in Victoria after completing their Jungle Training Course.
We should put a cane toad in charge of Victoria. Maybe we’d be saved!
Strange that Mr Mayne should comment on the Victorian Government “failing to contain the size and cost of the public sector workforce,” when other media commentators are getting stuck in because the Public Health Unit (the body meant to do contract tracing in an epidemic) was allowed to shrivel away.
I normally respect what Mayne has to say, but maybe he should stick to writing about corporate sector governance and gambling reform.