Victorian Government takes right path on stimulus

The Victorian Government yesterday released its 2020-21 State Budget, which will see the Government embark on a massive stimulus program in a bid to support 200,000 jobs within 18 months and 400,000 by 2025.

Below are key extracts from Treasurer Tim Pallas’ speech combined with key figures from the Budget Papers:

With Victoria’s gross state product forecast to decline by 4 per cent in 2020 21, the pandemic’s economic impact is likely to be the biggest in nearly a century.

Without decisive action, the impact could be devastating…

We currently project an operating deficit of $23.3 billion this year, forecast to reduce by almost 75 per cent to $5.9 billion in three years.

Net debt will reach $87 billion this year, and will grow to $155 billion by June 2024.

In keeping with the Federal Government and other States and Territories, we are borrowing to keep Victoria’s economy and livelihoods afloat…

Even with Victoria’s growing debt, interest costs over the next four years will not be challenging, averaging 4.4 per cent of revenue a year.

…by using the strength of our balance sheet, we are able to protect the budgets of households and businesses across Victoria.

We are putting our credit rating to work when it is needed most – to help Victorians now and into the future.

We are borrowing to make the necessary investments to drive a quicker and stronger recovery…

It is deliberately ambitious.

It will ensure an extra 200 000 Victorians are back in work by 2022; and 400 000 by 2025.

In guiding Victoria’s recovery, the Jobs Plan plays to our State’s strengths, generating growth in new and innovative industries…

The spending commitments include:

  • more than $10 billion for road and public transport upgrades;
  • $2.2 billion for preliminary work on the Suburban Rail Loop;
  • a partnership with the Commonwealth on the $10 billion Melbourne Airport Rail Link;
  • commitment to manufacture 100 new trams in Victoria;
  • $1.4 billion to build a new NGV Contemporary art gallery;
  • $1.6 billion to the “clean energy jobs” fund
  • $5.6 billion funding for schools and early childhood education; and
  • $5.3 billion to build more than 12,000 new public and affordable housing units.

Commenting on the Budget, Premier Daniel ­Andrews said future generations will benefit from the Government’s infrastructure program. He also said the increase in debt is justified given the historically low borrowing costs at present and the COVID-19 pandemic.

The Victorian Government’s approach is the correct one.

With private demand having collapsed across the state:

The State Government needed to step up to the plate to fill the demand hole.

Without this stimulus, Victoria would face a slower recovery, higher unemployment, and increased homelessness.

Unconventional Economist
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