With Greece imploding and fears mounting of contagion spreading over potential sovereign debt defaults, you would think the Australian media would be more vigilant than ever about fiscal porkies told by politicians.

Sadly, the Victorian Labor government again has proved that it is possible to describe black as white and get away with.

The media, almost without exception, has declared that Victoria is in surplus when the truth of the matter is the state is back on a debt path that will parallel the efforts of John Cain and Joan Kirner in a few short years.

Jeff Kennett inherited state debt of $33 billion from Labor in 1992, plus an overall deficit approaching $2 billion. After a remarkably successful austerity and rejuvenation program, which is precisely what Greece needs now, Kennett handed Steve Bracks and John Brumby total debt of only $12 billion in 1999. The biggest contributor was a world-leading $33 billion privatisation program.

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The first eight years of Victorian Labor managed to keep debt steady (see bar chart here, at $12 billion-$13 billion, largely because its spending spree was financed by running down the $1 billion-plus overall Budget surplus (that’s after capital spending). It also helped riding the credit bubble by using off-balance financing vehicles for key infrastructure projects such as ConnectEast, the Royal Children’s Hospital and the world’s second biggest desalination plant.

With PPPs now under severe pressure in a post-GFC world, the challenge for all state governments is delivering key infrastructure investment without building unsustainable debt burdens for future generations.

Tuesday’s Victorian Budget include claims of an $872 million “surplus” predicted for 2010-11, but this only covers operating activities and ignores infrastructure investment.

The reality is that debt will rise by another $3 billion in 2010-11 and is now expected to hit a whopping $39 billion by 2014, as Terry McCrann politely pointed out in Wednesday’s Herald Sun.

Treasury Corporation of Victoria, the state’s central debt management authority, is not exactly being open and transparent about this.

The federal government’s equivalent body reveals every single bond issue (see full list here) and loudly declares that total debt has ballooned $138.58 billion on its home page.

Yet TCV is still yet to reveal anything on its website about the funding challenge identified in the fine print of the state Budget. This is the equivalent of a public company not releasing its annual profit to the ASX.

The state-based media is not exactly pushing hard on this issue as most state government are equally tardy in their disclosures about debt.

The Australian’s error-ridden crusade against the Rudd government — look no further than Rio Tinto debunking today’s splash about $11 billion worth of projects being dumped — has not extended to applying some rigour to John Brumby’s latest profligate Budget.

The editorial in today’s paper includes the following:

Unencumbered by the hefty budget deficits besetting other states, especially Queensland and NSW, the Victorian government delivered a responsible election-year budget on Tuesday.

A modest surplus this year of $395 million is projected to increase next year to $872 million and average $1.2bn over the next four years, maintaining the state’s AAA credit rating. It is a bottom line that other states would envy, brought about through prudent fiscal discipline by the Brumby and Bracks governments and the difficult reforms of the Kennett era. These included electricity and transport privatisations, and slashing crippling public sector debt.

On the positive side, Treasurer John Lenders has paid down a large slice of debt, ensuring that the state’s net debt will peak in 2012-3 at 4.3 per cent of gross state product rather than the 5.1 per cent predicted in last year’s budget amid the financial crisis.

How can anyone write that about a Premier who is promising to triple state debt from $13 billion to $39 billion in the six years to 2014?

Besides, comparisons of debt to GDP are ridiculous because states have limited taxing power over that GDP. And the future government that attempts to clean up this mess won’t have a suite of utility assets to flog off.

The best thing to say about Victoria’s financial position is that all other states are worse off.