Vic Gov’s dire finances unsustainable

Victoria’s auditor-general office has said the government’s prolonged operating losses are not financially sustainable and indicate underlying structural issues.

VAGO’s observations – which feature in the auditor-general’s 2023-24 report into the state’s finances – are in response to the government sector incurring another operating loss of $4.2 billion, bringing accumulated losses over the last five years to $48bn.

“Prolonged operating losses … are not financially sustainable,” says the report.

The government attributes $31.5bn of the losses to its Covid-19 response and $16.5bn to providing ongoing public services. 

Recording a fiscal cash deficit of $14.4bn during the period marks the eighth consecutive year that the Labor government has spent more money than it has received in revenue – despite revenue coming in $8.4bn higher compared to 2022-23.

“Ongoing operating losses and fiscal cash deficits are indicators of structural issues with underlying revenue and expenditure policy settings,” says the report, which was tabled in parliament last week. “Prolonged operating losses and ongoing fiscal cash deficits are not financially stable, largely because they lead to higher debt levels than otherwise and indicate underlying structural risks.”

Interest on debt increased by $1.7bn during the period, which accounts for 6.1% of the government sector’s operating revenue and is expected to increase to 8.8% by 2027-28.

Elsewhere, the report shows government sector operating expenses increased by $3.7bn compared to the previous year. This was due to higher public sector staff costs and other operating expenditure.

In the report, VAGO recommends that the Department of Treasury and Finance:

• work with the government to better articulate its longer-term financial plan and use it as a framework when allocating public resources
• outline its debt management strategy including when and how the state will be able to start to pay down the debt that it has and plans to accumulate.

“Sound financial management is foundational to fiscal sustainability,” says the report. “A clear and well-defined long-term financial plan is required and integral to a robust and mature financial management framework.”

In an effort to address the debt, the government has embarked on cost-saving initiatives worth $9bn, with $4.9bn to be achieved over the next four years. However, as VAGO’s report acknowledges: “Achieving these savings and maintaining current service levels will be challenging.”