Why Victoria’s Budget for 2023-24 is a disaster with $31.5 billion in Covid lockdown debt

Victoria is an economic basket compared to the rest of Australia as Melbourne is the most closed off city in the world in a state without a massive resource boom.

While other Labor governments are announcing budget surpluses, the state led by leftist strongman Premier Daniel Andrews is targeting the wealthy by raising taxes on businesses, property owners and private schools in a bid to – 10 years from now – the $31.5 billion in Covid debt it incurred during the pandemic.

This is Melbourne’s economic hangover in September 2021 overtaking Argentina’s Buenos Aires as the world’s most locked-down city – with 267 days of restrictions.

In handing in his ninth budget, state treasurer Tim Pallas stated that the well-to-do would pay the two-part “Covid Debt Levy” — targeting landlords and businesses in an effort to raise $8.6 billion over four fiscal years. It will last until 2033.

“We know that some have come out of the pandemic better than others – and it is only fair that those who have done well have contributed to the repayment effort,” he told Parliament on Tuesday.

This will be felt by prospective taxpayers still in primary school, and by their parents who are now working with Labor to scrap payroll tax exemptions for 110 private schools, which could lead to higher school fees.

Companies with sales of more than $10 million will pay more payroll taxes while the tax-free threshold is raised from $700,000 to $900,000.

There will be a new levy for 860,000 landlords, owners of recreational homes and business premises.

An average landlord with $650,000 in land holdings would pay $1,300 a year.

Even with these measures, Victoria’s public gross non-financial debt will reach 213.2 per cent of revenues in 2024-2025, and will only continue to rise until 2026-27, even if future budgets return to surplus.

That’s more than double the 90.7 percent level in 2019-2020, which covers several months before the pandemic.

Mr Pallas stated that Covid had pushed up Victoria’s debt.

“We borrowed $31.5 billion to pay for the resources to deal with the emergency, such as hospital equipment, testing centers and business support,” he said.

“Before Covid, we had the kind of debt you take on to build, invest and grow an economy for the future.

“But with the pandemic emergency, we borrowed to keep Victorians safe.”

Mr Pallas said it would take 10 years to pay off the Covid debt without mentioning the word ‘lockdown’ in his 12-page speech.

“Our plan is temporary, targeted and, above all, responsible,” he said.

“It will raise an equivalent amount of funds, including interest, to address $31.5 billion in Covid debt over the next 10 years.”

Even without the Covid restrictions, the Reserve Bank of Australia’s 11 rate hikes will hit Victoria’s economy as inflationary monetary policies squeeze consumer spending in Australia’s second most populous state.

The state Treasury and Treasury expects real gross state product – another term for economic growth – to halve to 1.5 percent in 2023-2024, from 2.75 percent in 2022-23.

Even if rate hikes and higher state taxes don’t trigger a recession, Victoria isn’t benefiting from the resource boom like other states, meaning it doesn’t have the growing revenue to pay the Covid lockdown debt.

Victoria was Australia’s hardest hit state during the 1991 Australian recession – the last major downturn caused by excessive rate hikes.

At the time, another Labor prime minister from the socialist left faction, Joan Kirner, was in charge after the state bank disaster caused by the loss of $2.7 billion to merchant banker Tricontinental.

The state’s first female prime minister took over in August 1990, two years after her Labor predecessor John Cain won a third consecutive term.

Victoria was in such a mess that former Prime Minister Bob Hawke’s federal Labor government had to sell part of the Commonwealth Bank so Canberra could buy the ailing State Bank for $1.6 billion.

More than three decades later, Victoria is also led by a socialist-left prime minister, while Andrews won a third term last year, thanks to electoral support from voters in Melbourne’s most affluent eastern suburbs in seats such as Ashwood and Box Hill.

On Tuesday, Victoria announced a budget deficit of $4 billion for 2023-24.

This is happening as other Labor states deliver budgets in the black as iron ore-rich Western Australia announces a budget surplus of $3.3 billion for the same financial year this year.

Queensland, another beneficiary of higher commodity prices, last year announced a record budget surplus of $5.2 billion for 2023-2023 thanks to coal royalties.

Federal Treasurer Jim Chalmers this month announced a budget surplus of $4.2 billion, the first for a federal Labor government since 1989.

But as iron ore and coal prices fall from historic highs, the federal treasury projects a budget deficit of $13.9 billion for 2023-24.

With Canberra facing its own debt problems, it will make less sense to bail out Victoria as it did in 1990, before a recession.

To make matters worse, a vagary of statistical boundary changes in 2021 saw Melbourne overtake Sydney to become Australia’s most populous city for the first time in over 100 years.

The Australian Bureau of Statistics confirmed in April 2023 that Melbourne, including Melton’s population, was 4,875,400 people – 18,700 more than Sydney.

An economic downturn in Melbourne would seriously affect the rest of Australia, in a state that doesn’t benefit from resource booms like Western Australia and Queensland.

While other states recover more quickly and commodity prices eventually recover, Victoria would be in a deeper economic hole without strong population growth, due to overseas migration, to sustain it.

Melbourne was built during the 1860s gold rush, but today there are more rivers of debt in Victoria.