“Victoria has the worst debt burden of 17 similar states across the world, and credit agencies warn it is likely to deteriorate unless tough decisions are made to cut infrastructure spending and raise more taxes” …..
“Brendan Coates, of the Grattan Institute, said the government continued to face tough choices, and urged it to review the viability of the Suburban Rail Loop, the only project not subject to the federal review of infrastructure spending”. Sumeyya Ilanbey State political reporter for The Age May 25.
None of the this should come as a surprise. The re-emergence of tough financial times has been predicted for many years and governments, corporations and individuals with high levels of debt will always be vulnerable. Unfortunately this is only the beginning. Much harder times are forecast for Australia and the global economy later this year and next, which some economists predict will result in a severe economic downturn that could rival the GFC or even the Great Depression. The warning signs were clear enough so why was government not listening and was the high level of debt really necessary in the first place?
These were issues that concerned TFM when it was established more than ten years ago, when the State government changed its transport investment priorities to major infrastructure projects. Spending on capital works has ballooned since and has become the main source of Victoria’s state government debt.
Government maintains this “investment” is necessary to promote jobs and economic growth but this is a very weak argument. Capital works of this nature are not labour intensive and the jobs multiplier effect is relatively low. If government was serious about creating jobs there are far more effective ways to do this in areas of real need, particularly in the government and community services sector.
But more importantly we challenge the notion that investment in new infrastructure, particularly large, mega projects is a sound investment in the first place. This was the subject of my first blog in 17/8/20 and concerns raised in it have been repeated regularly since. The business case for all projects in the “Big Build”, particularly the Suburban Rail Loop is weak and our advice is to terminate the lot, focus instead on actions that will generate measurable benefits quickly at minimal cost – what we call low hanging fruit of which there are many, maximise the use and effectiveness of existing infrastructure before building new and apply lessons that can be learnt from international best practice.
Sumeyya Ilanbey reported AMP Capital chief economist Shane Oliver saying that “if state debt continued to grow as projected, Victorians would end up paying the price with higher taxes in the near future and diminished government services”. We agree but it will also result in significant job losses and that is a high price to pay for what is largely the result of a failure in governance and proper process.