Victoria's Debt Crisis Linked to Prolonged Lockdowns

Impacts of Lockdowns on Victoria's Economy

The Andrews Government's extended lockdowns are being held responsible for Victoria's escalating debt by a top credit rating agency. This comes as the state faces the possibility of a credit rating downgrade within the next year. Melbourne, Victoria's capital, experienced the longest lockdowns globally, spanning six lockdowns and a total of 262 days in 2020 and 2021. This period saw many businesses close, with workers relying on benefits. Anthony Walker, the director of the sovereign ratings team at S&P Global Ratings, stated that Victoria had the best financial outcomes in Australia just five or six years ago. However, the Andrews Government's lockdowns have led to less than positive fiscal conditions. He further highlighted that while most states worldwide have financially recovered from Covid, Australian states, including Victoria, are lagging behind.

Concerns Over Government Spending and Debt

Walker pointed out that tough decisions need to be made regarding government spending, especially with a potential credit rating downgrade looming. This could result in more state funds being directed towards paying off higher interest fees on debt, potentially impacting social welfare programs or infrastructure projects. Currently, Victoria is spending $26 million a day, or $9.4 billion per year, on interest repayments towards the state's $156.2 billion debt. This figure is projected to rise to $187.8 billion by 2027-28. Victoria's net debt is expected to be 24.4% of the gross state product by June 2025.

Infrastructure Projects and Credit Rating

Walker also warned that budget overruns and funding shortfalls on several large infrastructure projects could further pressure Victoria's credit rating. Victoria's credit rating already dropped two levels from AAA to AA in 2020, a move Walker said was unprecedented for a state government.

Lockdowns: The Worst Peace-Time Policy Failure?

Professor Gigi Foster, an economist at the University of New South Wales, argued that Victoria's lockdowns would have significant economic costs. She labeled the lockdowns as potentially the worst peace-time policy failure in Australia's history. Foster warned a Victorian Government committee in August 2020 that continued lockdowns would cause more loss of life years and well-being than they would save. However, her warnings were not heeded.

Impact on Human Health and Economy

Stanford University epidemiologist Professor Jay Bhattacharya also voiced concerns about the harms of lockdowns. He argued that lockdowns did not ultimately protect human life and devastated the economies of the countries that implemented them most strictly. Bhattacharya emphasized that economic harm translates to harm to human health, as poorer populations lead shorter, less healthy lives.

Victorian Government's Response

A spokesperson for the Victorian Government stated that they used their balance sheet to protect families and businesses at the height of the pandemic. They also highlighted that Victoria has led the nation in jobs growth since September 2020. The spokesperson added that the Victorian Budget 2024/25 is the first time net debt to GSP has dropped since 2017.

Looking Ahead

Foster expressed concern that Victoria's debt problems are just the beginning. She suggested that the government could take steps to improve the situation, such as reducing its numbers and paychecks, reducing red tape across industries, and focusing on providing high-quality, easily accessible basic services and public goods to all Victorians.

Bottom Line

The Covid pandemic's management, particularly the use of lockdowns, has had significant impacts on Victoria's economy. The state now faces a challenging task of economic recovery while managing a substantial debt burden. As we move forward, it's crucial to reflect on the lessons learned from this experience. What are your thoughts on this issue? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.