New independent analysis from the Parliamentary Budget Office (PBO) and the International Monetary Fund (IMF) has shown total state government debt across Australia is set to balloon by 66% to $400bn in the next four years and, unless curbed, could force the Reserve Bank to raise interest rates even further.
Driven by projects like the unfunded Cheltenham to Box Hill rail line and the need to finance over $30bn in major project blowouts, Victoria’s debt surge is projected to be the biggest in the nation, accounting for more than one-third of all state government debt increases.
The debt spiral comes as the IMF called on state governments to rein in unnecessary spending and blowouts and instead pursue major project investment “at a more measured and coordinated pace… otherwise, interest rates would have to be even higher, putting the burden of adjustment disproportionately on mortgage holders,” the report said.
With thousands of Victorian households already under increasingly unsustainable mortgage stress and wider cost of living pressures, a further increase in rates would see existing home ownership rates fall and make it even harder for potential first home buyers to enter the market.
The inflationary impacts of Labor’s spending have been known to the Allan and Andrews Governments for over a year, with Treasurer Tim Pallas acknowledging in May 2022 that Victoria’s construction market was close to “tapping out”.
Shadow Minister for Major Projects, David Southwick, said “With Victorians struggling to make ends meet in a cost of living crisis, Labor’s reckless spending will only make life harder.”
Shadow Treasurer, Brad Rowswell, said: “Labor’s reckless spending and project cost blowouts are adding to inflationary pressures, and with more debt that New South Wales, Queensland and Tasmania combined, Victorians will ultimately pay the price for Labor’s mismanagement.”
