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April 30, 2026 — 5:00am
It is difficult to know precisely when it happened, but somewhere between Kevin Rudd’s reverse ferret of 2007 when he declared “this sort of reckless spending must stop” and the post-fiscal paradigm in which Victoria now finds itself, it became virtuous for governments to keep on shelling out.
We’re not talking necessarily about the kind of vote-buying giveaways we’ve seen lately, with the Allan government chucking in free public transport and cash back on car regos with every set of Ginsu knives, but rather, the perennial business of funding hospitals, schools, police and roads.
This week’s announcement of “a record $1.04 billion to rebuild, repair and resurface roads across Victoria” in next week’s budget is a case in point.
Every year, the government spends a lot on maintaining roads. This financial year it is forecast to spend $976 million. Anyone who drives on them regularly knows that despite this, our roads are terrible. I’d take up the government’s offer for a rego discount on my zippy little Renault if only I could find it. For those who live nearby, it was last seen approaching a gaping pothole on Whitehall Road.
When Premier Jacinta Allan announces a “record roads blitz to target potholes and graffiti” she is not promising a better way of maintaining roads or washing walls. She is promising to spend more money to do more or less the same thing the government has previously done.
But wait, there’s more.
A stack of similarly worded press releases have been prepared to herald the release of next week’s state budget. Record spending on schools! Record spending on hospitals! Whatever the government service, it will receive more money than ever before to deliver. Hold your applause for Tuesday.
When the premier was announcing her “record roads blitz” a journalist interjected with a question. “Is this money that you are investing going on top of the state’s debt?” The premier’s answer, while nonsensical in parts, opened a timely window into Allanomics, a circular budgetary philosophy where the only antidote to excessive government spending is to spend more.
“I understand why there are questions about what we are also doing to drive down the percentage of debt as a proportion of the state’s budget. We are doing that through delivering an operating surplus and also too, we are doing that through growing the economy.
“One example of how we are growing the economy is our state has grown the fastest, compared to any other state, in the past decade. That is how you drive down debt as a percentage of the economy and leave capacity in the budget to make investments in the things that are important.
“As premier I’m determined to use government to help people and you can do that when you have the budget settings that are driving down debt as a percentage of the economy ... and you grow the economy by also making investments through your budget, that supports jobs, that attracts businesses, that builds more homes. That’s what we are doing and that will be what you see when the state budget is released next Tuesday.”
To better understand the premier’s response, I sent it to economist Saul Eslake, who is currently attending a conference in Buenos Aires. He noted that the idea of borrowing more to spend more to grow more, while also popular in Argentina, results in lenders charging you higher rates of interest to borrow, which is what we are already seeing in Victoria.
Higher interest means that, whatever revenue the government gets back from its investments, more money is needed to cover the cost of servicing the state’s debt. According to the most recent budget forecasts, Victoria’s interest bill for this year is $7.7 billion, which would buy a heap of bitumen. It is forecast to reach $10.5 billion by 2028-29.
Our interest bill is the fastest growing expense line item in the budget. It is growing at more than twice the rate of net debt. This is because the state is refinancing loans taken out in the free money era of the pandemic.
Before ending with a joke, Eslake returns to a point he has made many times about Victoria’s bottom line. An operating surplus, which Treasurer Jaclyn Symes will deliver on Tuesday, is better than an operating deficit but in itself, won’t reduce Victoria’s debt or its interest bill.
Victoria’s ongoing fiscal problem is that once capital expenditure is taken into account, the state will spend nearly $10 billion more than the revenue it generates this year and $32 billion more over the next four years. This is Victoria’s cash deficit which, even with the most creative application of Allanomics, goes straight on to state debt.
Our debt pile, if you include the balance sheets of government business enterprises, has already topped $200 billion and is forecast to reach $235 billion by 2028-29. As former Productivity Commission chairman Michael Brennan reflects, we are borrowing every year and at a materially higher cost than we previously borrowed. He calculates that the average interest being charged on government debt is about 4 per cent and rising.
Now for Saul’s joke.
Eslake says that listening to Allan talk about growing the state out of debt evokes an old story about an engineer, a physicist and an economist who are stranded on a desert island with only tinned food to eat and no can opener.
The physicist suggests using the heat of a fire to expand the contents of the tin and force it open. The engineer, MacGyver-style, puts together a homemade tool which he reckons will slice open the tin. The economist offers a simpler solution: “Why don’t we just assume we have a can opener?”
Allanomics, alas, is no laughing matter.
Chip Le Grand is state political editor.
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