In 1994 while shadow finance spokesman, I wrote a paper titled “Economic and Financial Management of Victoria under Labor”.
It was an attempt to look honestly at what happened under the Cain/Kirner governments that led to Labor’s loss to Jeff Kennett in 1992.
The paper noted important reforms under Labor including modernisation of accounting standards, new program budgeting practices, development of models for private public partnerships and significant investment in community infrastructure — schools, hospitals, parks and transport.
Yet there were many issues. The State Bank had to be sold as it was in a parlous financial situation. The Tricontinental Building Society collapsed, affecting the savings of Victorians and the government’s investment arm VEDC posted large losses. WorkCover was $3b in debt.
As I stated back then, there was inadequate attention to economic and financial imperatives, inappropriate borrowing practices, shifts between the current and capital accounts and the use of debt to fund the current account. These were all factors in Labor’s demise.
When I presented the paper I was heavily criticised by some in the Labor Party and the unions. But the ensuing debate led to Labor adopting economic and financial principles. These included: more transparent and regular financial reporting; reducing and benchmarking debt; transparent accounting practices; enhanced Auditor General scrutiny; and most importantly, maintaining at least $100m surpluses on the current account,
It was partly as a result of these strong fiscal commitments that Labor under Steve Bracks won the 1999 election. In particular Labor’s support for scrutiny by the Auditor General highlighted the Kennett government’s attempts to knobble the AG by taking away crucial resources.
Can the same criticisms of Labor’s economic and financial management under Cain/Kirner be levelled against the Andrews government and Treasurer Tim Pallas?
I don’t think so.
For a start, Pallas, until the latest budget, ran significant budget surpluses averaging $2.2bn. Labor in Victoria over the last five years has outperformed the rest of Australia on crucial economic indicators. Victoria’s GDP growth was 3.3 per cent per annum on average, versus the Australia wide average of 2.5 per cent. Employment growth was 3.3 per cent versus Australia’s 2.3 per cent.
Debt has also been well managed by Pallas. Under the Baillieu/Napthine governments, debt had increased from $11.8bn in 2011 to $21.2bn in 2014. By 2017 under Labor it was down to $15.8bn before increasing to $25.5bn with significant new infrastructure investments.
The point is that until the advent of COVID all of these debt figures were much lower than the estimated $50bn-$70bn debt under the Kirner government. More importantly, during the Kirner period, interest rates were as high as 18 per cent. Consequently, 13.9 per cent of state revenue went in paying interest on debt compared to todays 3.3 per cent.
Relatively low debt levels and decreasing interest rates have meant the Andrews government has been able to propose large COVID-related borrowings while increasing to only 4.8 per cent of state revenue debt repayment costs by 2024.
We can also take comfort in other scrutinising actions such as empowering the Victorian Auditor General to review and sign off on the Victorian budget.
The Andrews government and Pallas have performed strongly on the economic measures of surplus budgets, debt management, economic growth and employment growth. It is miles ahead in economic management terms to the Cain/Kirner governments.
But the pandemic has changed everything.
Whatever one might say about the second wave, there is no doubt that decisive leadership by Dan Andrews has brought Victoria back. This is not an excuse, it is a statement of fact.
No doubt Pallas thought long and hard about what was required. I know he does not like deficit budgets, and while he is willing to use debt during low interest periods to build infrastructure he would I am sure prefer to do this outside of a pandemic.
In politics you must sometimes take action that has the potential to cost you or your party electorally for the greater good. Raising Victoria’s debt to $154.8bn by 2023-24, budgeting for a $23bn deficit reducing to $5.9bn in three years — these are not easy decisions.
They are designed to get 200,000 more Victorians employed by 2022 via a $43.9bn increase in GSP to 2024. If successful this would mean Victoria could get back to surplus in the second half of this decade and begin repaying debt.
But these things also depend on keeping the pandemic under control, building business confidence and repairing our trade relations, especially with China. It is risky and many of us will be watching the implementation with some anxiousness especially since Victoria’s credit rating was reduced from AAA to AA. But as the Reserve Bank Governor has noted such downgrade does not concern him but people not having jobs does.
The claim that the Andrews government’s economic management practices are similar to the Cain/Kirner government is not justified on the evidence.
It is the very fact that the Victorian economy has been managed so well and was so strong that has allowed Tim Pallas to construct a budget to supercharge Victoria’s recovery. We all have to hope it works.
This op-ed was originally published in the Herald Sun and is being republished in Neos Kosmos with Theo Theophanous’ permission.
Theo Theophanous is a commentator and former Victorian Labor minister