Victoria Coalition budget plan risks deeper fiscal gap, economists say

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Victoria Coalition budget gap

Highlights

Analysis by RMIT's David Hayward identifies a potential $9 billion gap in the Victorian Coalition's budget repair plan, with $6.4 billion in proposed cuts not offsetting $7 billion in tax cuts over four years.
Economic experts, including Saul Eslake, warn the Coalition cannot deliver a cash surplus by 2032 while pairing tax cuts with sustained or increased spending, suggesting fiscal rules and caps are needed.
The Victorian Chamber of Commerce and Industry cautions that uncosted campaign promises risk worsening the state's debt crisis, negatively impacting business, investment, and employment.

Costings scrutiny before the election

As reported by ABC News, two economists say the Victorian Coalition's budget repair plan does not yet show how it can deliver a cash surplus by 2032 while also cutting taxes and maintaining spending commitments. Opposition Leader Jess Wilson has pledged to replace the emergency services volunteers fund with the former fire services property levy, cut land tax, remove payroll tax on private schools and scrap stamp duty for first-home buyers.

RMIT professor of public policy David Hayward, who conducted an analysis pointing to a potential $9 billion hole in the state's finances, says the numbers do not add up. He identifies $6.4 billion in spending cuts and $3.4 billion in new spending initiatives, and says those savings are not enough to offset roughly $7 billion in tax cuts over four years.

Hayward also warns that pausing the Suburban Rail Loop could create another large budget problem, with tunnelling under way and $7 billion already spent. He says opposition attacks on waste in the public service, including contracts for office plants and coffee machines, are too small to materially shift a budget worth more than $100 billion.

With pre-polling centres opening in just over four weeks, the Coalition is expected to outline further savings before voting begins. Wilson rejects criticism of the opposition's costings and says her team has announced more than $24 billion in savings, arguing only the Coalition has a credible plan to repair the budget and reduce debt.

Debt debate broadens across business and policy circles

Independent economist Saul Eslake says the Coalition cannot reach a cash surplus by pairing tax cuts with continued spending increases, and argues Victoria needs a mix of expenditure cuts and revenue measures to put its finances on a sustainable path. He says there is limited room for further tax increases because Victoria is already the highest-taxing state by a wide margin, but adds that Grants Commission analysis suggests there is scope to cut spending without reducing public services below average levels.

Eslake also criticises Wilson's recent claim that Victorians cannot trust the budget papers, saying the current government has badly mishandled the state's finances but has not falsified them. He urges the Coalition to adopt fiscal rules, including debt targets and annual caps on spending growth, to give voters a clearer framework for budget repair.

The Victorian Chamber of Commerce and Industry is also calling on all political parties to focus on disciplined and targeted policy ahead of the election, warning the state is in a debt crisis. Acting chief executive Amelia Bitsis says Victoria cannot spend its way out of a debt problem and warns that election promises that raise spending without clear economic returns will make the challenge harder for businesses, investment and employment.

In our earlier article on Mario Draghi’s warning about debt, inflation and interest-rate settings, we explained his argument that policymakers risk undermining long-term growth if debt control and inflation fighting lead to overly restrictive financial conditions. Draghi stressed that when rates sit above growth for long periods, debt burdens can worsen and pressure can build for “fiscal dominance,” so central banks should aim to restore price stability while doing the least possible damage to productive investment and resilience.

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