Grattan Institute, Chris Richardson say Victoria can make ‘tough choices’ on budget before getting federal handout – The Australian Financial Review

Grattan Institute, Chris Richardson say Victoria can make 'tough choices' on budget before getting federal handout - The Australian Financial Review

Victoria’s yearly capital works spending nearly tripled from an average of 0.6 per cent of the economy in the five years to 2016 to 1.9 per cent in the five years to 2022, with most of the increase spent on transport infrastructure and funded by borrowing.

Although infrastructure spending is not included in the operating budget, depreciation on this capital spending affects the budget result in subsequent years.

And because this has been funded from debt, the report found “this means that depreciation and interest will be growing costs for state budgets over the next decade”.

Rapidly increasing demand for hospital and social housing funding was likely to add further pressure to state budgets, it continued, at the same time as their revenue sources were “likely to come under renewed pressure”.

The two biggest revenue sources for states – the GST and property stamp duties – were likely to be hit by reduced consumption and the housing market downturn.

But Grattan’s deputy budgets program director, Kate Griffiths, said state governments could look at increasing or imposing payroll taxes, congestion charges and property taxes to improve their situations.


“There are ways Victoria can deal with this itself and going to the feds isn’t the first port of call – the federal government will be wanting to make sure they have done that before anything else,” she said.

Kate Griffiths says GST could be increased. 

“There’s also inefficient spending going on in some big infrastructure and transport projects, the pipeline there is already very tight and hitting pause on some of those could help save some of those costs and also drive down the cost of some existing projects. Victoria is just going to need to make some tough choices.”

The Grattan Institute is also pushing for the GST to increase to 15 per cent, with the extra money split between the federal and state governments.

Rich Insight economist Chris Richardson added that though COVID-19 had hit Melbourne hard, crunching Victoria’s bottom line more than other states, that did not warrant a federal bailout.

“Victoria is where it is because of choices – even allowing for that point around COVID hitting harder, there’s been a lot of federal support, both direct and indirect,” he said.


“Victoria has also gone hard on infrastructure – some of it’s been good choices, some of it maybe less so.

“So there’s no problem with Victoria asking nicely, but I’d be more than happy to see Chalmers politely decline. The feds have supported them a lot.”

Door open for federal help

Federal Treasurer Jim Chalmers did not rule out offering Victoria more support on Tuesday, but pointed out that the national and other state budgets were also getting crunched.

“[Andrews’] budget is under pressure, no doubt about that. But so is mine, so are a number of the other state colleagues,” he said.

“So we try and work with people, rather than against them, and we have a lot of agreements coming up in the course of the next year or so. We’ll work with the Victorians and with others to try and land them.”


Ms Griffiths said state governments were “very good” at pressuring their federal counterpart to open its wallet, pointing out they were already asking the federal government to continue COVID-19 hospital funding support amid growing cost pressures.

“States fund the big services like education and health, and that’s a big pressure point for the states to take to the federal government and push for more support.

“But it’s hard to know if it will work – will the mainland states being all red help create a situation where they can have conversations about joint interests such as a GST increase, or will it mean that certain states are taken for granted?”


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