Stubborn government refuses to pay down some of what it owes

Reality is biting the Victorian budget. To be precise, it is taking a $50 billion chomp out of the money this government has, and the one that follows will have, to pay for the services and infrastructure people need.

This whopping figure is the cumulative interest the state must pay back this financial year and over the next four years on the money borrowed by the Andrews and Allan governments.

This year’s bill is $7.85 billion. By 2029-30, it is forecast to be $11.8 billion. There are plenty of numbers in the state budget handed down on Tuesday but, for now, let’s stick with these.

The cost of repaying debt, over the forward years of the budget, increases by 50 per cent.

It is the fastest growing line item of expenditure in the budget, with daylight second. It is growing at 2½ times the rate of debt. More on this later.

Treasurer Jaclyn Symes describes her second budget as a document of careful choices and difficult decisions, and in some respects it is. In its 12th, and perhaps final, year, the government has lowered its eyes from the distant horizons of mega-projects to smaller, more pressing household concerns.

“This budget is about getting to the heart of that feeling,” Symes said. “It is about helping with the cost of living. It is about giving families more time in their day”.

It is a budget that projects warmth and care.

But the cold, hard cost of servicing debt, a cost driven by global inflation, rising interest rates and the government’s refusal to pay down some of what it owes, will make already difficult decisions more difficult in the future.

Opposition Leader Jess Wilson says that $7.85 billion, the interest bill for 2026-27, is enough to cover the cost of the state’s police, ambulances and kindergartens, and still give you $1 billion in change.

The forecast $11.8 billion bill in 2029-30 is more than the cost of the West Gate Tunnel. It is the amount of taxpayer money the government says it will spend on the first stage of the Suburban Rail Loop. It is more than next year’s annual appropriations for any government services beyond health and education.

By then, 10¢ of every dollar of revenue raised by the government will go towards repaying interest on the debt. Calculations done by Michael Brennan, the chief executive of the e61 Institute and a former chairman of the Productivity Commission, shows this figure will keep on rising.

According to Brennan, when Victoria was borrowing like a white-shoed spiv in the depths of the pandemic, the average yield on government bonds sold to finance debt – effectively the state’s interest rate – was 2.7 per cent. That figure is now sitting at 4 per cent. By 2029-30, when the state’s borrowings are forecast to reach $238 billion, the average bond yield is predicted to be 5 per cent and still rising.

In the 12 months since the last Victorian budget was delivered, an additional $1 billion has been added to the total interest the state is forecast to pay over the next four years. This is despite net debt being adjusted marginally down from what it was.

Some of the reasons for this, as Symes repeatedly pointed out, are beyond the control of the Victorian government. Her budget speech was replete with references to Donald Trump’s war in the Middle East and the global oil crunch that has fed inflation and prompted rate hikes of the kind we copped on Tuesday from the Reserve Bank.

But amid Symes’ difficult choices, there are other ones the treasurer could have made.

In the year since Symes delivered her first budget, the government found an additional $5.3 billion in revenue tucked away for this financial year. Some of it came from a higher-than-expected tax take. Some of it came from larger-than-expected federal government grants.

There are also substantial savings Symes secured from a public service squeeze that is forecast to keep growth in the state’s wages bill to a modest 3.3 per cent over the forward years.

Wherever the extra money came from, it is all being spent. None of it is being used to retire debt – the only means of reducing the state’s interest bill other than Victoria commandeering the Strait of Hormuz.

RMIT social policy expert David Hayward says this is a continuation of a well-established trend. “Whenever they get additional cash, they spend it,” he says. “They have spent all the chocolates.”

The government calculates that voters will be more grateful for the sweet morsels being offered than worried about the cost of debt. Wilson says Victorians understand the consequences of a whopping interest bill, but she is yet to outline a path to a smaller one.

More Victoria budget coverage:

• News story: Labor unveils election-year splurge despite debt soaring to $199 billion
• Live blog: Treasurer Jaclyn Symes hands down the state budget
• Winners and losers: Cost-of-living relief for commuters, but pain in store for future taxpayers

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