It is a rare thing in Australia for the Labor Party to serve up a successful opposition leader like Daniel Andrews who hails from the Left faction.
The more conventional story is that centrist Labor Right leaders such as Steve Bracks and Kevin Rudd persuade the electorate that they can be trusted with public money after a period of conservative rule that delivered sound financial outcomes.
The prominent Left faction Labor leaders, such as Julia Gillard, Joan Kirner, Anna Bligh, Jay Weatherill and Nathan Rees, who have secured the top job tend to do so from government after Right faction leaders retire or are removed.
History also suggests the budget outcomes in all those cases listed above have deteriorated once the Left faction has assumed the leadership. Usually, with the exception of South Australian Premier Jay Weatherill, this has then led to a change of government and a major budget repair job by Coalition governments such as those led by Mike Baird, Campbell Newman and Tony Abbott.
The Cain-Kirner Labor governments left office in 1992 when Victoria had amassed $33 billion of state debt and $18 billion of unfunded public service superannuation liabilities.
After seven years of slashing, burning and privatising by the Kennett government Steve Bracks took power in 1999 with gross debt and unfunded super liabilities back below $20 billion.
It was arguably the best financial inheritance ever left by an Australian state, and this helped Bracks secure a landslide second term in 2002.
However, despite all this talk of “budget surpluses” in Victoria, truth be known the state’s gross debt has more than tripled to about $40 billion since the GFC.
And while unfunded super is supposed to be fully funded by 2035, it is still worryingly high at $23 billion and will rise again with more generous wage settlements for firies and ambos, who already enjoy a very generous defined benefit pension entitlement.
Treasury Corporation of Victoria (TCV), the state’s central borrowing authority, is mid-way through a $5.6 billion refinancing challenge in 2014-15.
However, as this TCV presentation associated with the May 2014 Victorian budget notes, much of the borrowing is being done as short-term loans based on the assumption that the Port of Melbourne sale will bring in $6 billion.
When you consider the continuous disclosure requirements imposed on ASX-listed companies, it really is unacceptable that TCV hasn’t done a market update in six months.
Given that private investors have lent Victoria $40 billion, they deserve to be comprehensively briefed on the full implications of all the promises that Labor made during the recent campaign.
For instance, we know that Prime Minister Tony Abbott is threatening to recover a $1.5 billion federal grant for the East West Link if the project doesn’t proceed. There was also the defeat in the Court of Appeal yesterday, which will stick taxpayers with a bill for a $540 million compensation payment to Tatts Group after the botched management of Victoria’s poker machine licences.
We also know that minor parties will have the balance of power in the upper house and new Liberal leader Matthew Guy was on Friday telling Jon Faine that he would make no commitments to support the Port of Melbourne sale until the full detail was released. Labor could find it difficult to negotiate the lease, with the Greens opposing it.
Just as Santos discovered with its pulled bond issue this week, investors can be skittish when turbulence hits markets.
Victoria is increasingly dependent on the Commonwealth for funding, and we know that Canberra’s budget position continues to deteriorate as gross federal debt has now reached $348 billion and is rising at almost $1 billion a week.
Given that Treasurer Joe Hockey is preparing to release a mid-year budget update before Christmas, perhaps Daniel Andrews should consider doing the same when he recalls Parliament in the coming days.
New Victorian Treasurer Tim Pallas will already be acutely aware of these challenges and the biggest stick he’ll able to use against some of his big-spending colleagues is the discipline of the market, which won’t keep endlessly refinancing cheap Victorian debt if there’s isn’t a credible long term financial plan for the state.
The key metric to watch is Victoria’s unique position as the only Australian state with a AAA credit rating and a stable outlook from all three credit rating agencies.
Based on the huge amount of spending promises Andrews made getting into office, I reckon that situation will have changed by the time of the next federal election.
*Stephen Mayne worked as a press sectary to Kennett-era treasurer Alan Stockdale from 1992 until 1994. He is a Melbourne City councillor.