Victoria’s state budget could chart a course further away from the federal orbit

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You can plan, you can prepare, you can pray.

But there’s no way to know the future…that’s how I explain what I wrote about the Victorian state budget in the foggy days of May 2019 when I said “d ‘other states would like to have Victoria’s problems’.

Victoria has problems. And a lot of money is used to fix a lot of them.

On Tuesday, we’ll get the latest look at the books via the state budget. Treasurer Tim Pallas will reveal how the government will spend money ahead of the November state election.

There have been only a handful of pre-budget announcements this time around, including a $250 rebate for all hydro bill payers that is expected to cost the state $250 million and a tax hike for Crown Casino’s poker machine.

The focus should be on pumping money into the state’s strained healthcare system, which will likely drive a steep price tag.

Before we get to that, it’s worth looking back to the pre-COVID era to determine where the nation’s second most populous state came from.

And where is it going.

The time of the time machine

In 2019, the Labor Party failed to win the federal election it was widely expected to win. It wiped out a generous $2 billion funding pledge that made her point – about how Victoria has historically been wronged in federal government infrastructure – with all the subtlety of the hammer she would have paid.

(The Federal Government contributes to projects such as the Melbourne Airport Rail Link and has billions for the East-West Motorway Tunnel in a “locked box” that will not be redirected to developments such as the Melbourne Rail Loop. Suburban, West Gate Tunnel or Subway Tunnel.)

The state and federal governments are investing in a rail link to Melbourne Airport.(Supplied: Victorian Government)

But the budget still roared. Funded with cheap money, the Andrews government was spending $107 billion on ongoing or imminent infrastructure projects and the treasurer said that was more than the Commonwealth would spend on the whole country in the course of the next decade.

Nearly 3,000 new residents were arriving in Melbourne each week, and the budget included schools, rail tunnels, level crossing removals and projects in just about every postcode in the state.

Next, COVID-19.

Pandemic tests Victorians’ resilience

Victoria has been hit hard by the pandemic.

Gross State Product (GSP) is the value of all goods and services over a period of time, the equivalent of the state which constitutes the gross domestic product of the nation.

In FY 2020-21, Victoria’s GSP fell by 0.4%. New South Wales saw an increase of 1.4%, South Australia an increase of 3.9%. The Northern Territory was the only jurisdiction to join Victoria in negative territory, down 0.6%.

Pedestrians, some masked and some not, walk through the Bourke Street Mall during the day.
Victoria’s expenses have increased significantly during the pandemic.(PA: Diego Fedele)

As for the different categories, it’s no shock if you think about the restrictions and lockdowns to contain the COVID pandemic which has tested the resilience of Victoria – much of Melbourne – for months.

Contractions were largest in construction (-4.6%), administrative and support services (-9.0%) and transportation, post and warehousing (-8.7%).

Last year’s budget projected an $11.6 billion deficit this year, with deficits through at least 2025. In the “mid-year” update in December, which had risen by $8 billion to a staggering $19.5 billion shortfall as spending, to get the state pulling again, added.

But that was back when only Greek speakers and Scrabble enthusiasts knew how to spell Omicron. This COVID variant has chilled Christmas 2021 and the summer period, which Melburnians have been slow to shake off in 2022.

Head to the polls, twice

The budget is tabled in the middle of a federal election and six months before Victorians go to the polls to choose a government.

The Coalition has well-established issues in the state, at the federal level.

There are 38 federal representatives departing from Victoria to sit in the lower house of parliament in Canberra. Only 12 of them are from the Liberal Party. Three others are Nationals.

In the last election, if the longest-serving Liberal, treasurer and deputy Victorian leader, Josh Frydenberg, had secured an additional 586 votes, he would have won his Kooyong seat single-handedly, with no preferential votes from the eliminated candidates.

This year it’s not that simple, with an independent candidate pushing for victory in a way that has never been seen before.

Billboards on the side of a building in Camberwell Junction
Josh Frydenberg faces a fierce challenge for his Kooyong seat from Monique Ryan.(ABC News: Nassim Khadem)

Another notable element of the election could be the federal government’s treatment of Victoria as the state suffered from subsequent waves of the pandemic. This may seem unfair considering the billions of dollars in support that have been sent to states, but it was a huge problem at the time.

In Victoria, things weren’t helped when Deputy Prime Minister Barnaby Joyce angered his state-based national colleagues with comments that parts of the country couldn’t “care” about COVID.

“We have record coal exports. Record beef exports. But we look at Melbourne and go there, you can almost smell the burnt flesh from here,” he said.

At the state level, the 2018 “Dan-slide” gave the government a whopping 55 of the 88 assembly seats. The Liberal Party’s 21 seats represent less than a quarter. Even adding the six members of the National Party, the Coalition does not reach a third of the lower house.

Daniel Andrews’ government probably doesn’t expect to hold uptowns like Hawthorn who surprised by voting out a Labor member, but current polls make it hard to see a change in government.

Victoria goes her own way

What does this have to do with the budget? A lot.

As Melbourne continues its long rise to become the country’s largest city – even with a loss of population since 2020 – there is also a political realignment.

The booming northwest suburbs have a new federal seat named after former prime minister Bob Hawke who looks likely to vote for a member of his Labor party. Spring Street will not expect much if the federal government is re-elected, nor a very different financial situation if Anthony Albanese leads the opposition to power.

Last year’s Victorian Budget intervened in areas – like addressing cellphone ‘black spots’ and industrial relations – that are clearly within the purview of the federal government.

He launched a program that provides five days a year of sick and carer’s pay, at the national minimum wage, to casual and contract workers who would otherwise have nothing. The steps continue.

The state has gone it alone in large, multi-billion dollar public transport projects, without the aid of the tax-collecting machine that is the national treasury. Despite the federal government, or despite?

There is no constitutional ability for Victoria to leave the Federation, so forget any discussion of Vexit. But Victoria seems to be banking on the idea that they can chart their own course – to hell with the “debt and deficit” talk, spend big to grow the economy and pull the state out of a deep fiscal hole.

The elections in May and November will let us know what the inhabitants think of the plan.

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