This comes despite repeated attempts by Mr Andrews and his deputy premier, Jacinta Allan, to blame the state’s debt woes on advice given by the Reserve Bank to “go and borrow” during the pandemic, or risk labour-scarring.
“The biggest contributor is growth on spending – recurrent spending and infrastructure,” Mr Eslake told The Australian Financial Review on Monday.
“The premier has been seeking to deflect blame to the RBA. There’s an element of truth to that, as before the pandemic the RBA was encouraging state governments to borrow to spend on productive infrastructure, and during COVID they were again encouraging them to borrow, forecasting that record low interest rates would remain until 2024.
“Despite those solemn undertakings, rates increased. But this advice wasn’t offered specifically to the Victorian government, and they chose to go much further in carrying out that advice. It is part of the story, but only part of the story. So this does not exculpate the choices Daniel Andrews has made.”
Mr Eslake said while the Victorian government had some revenue options, including a surcharge on payroll tax, “none of them are good”.
“That only leaves pushing back on infrastructure,” he said.
“You could defend pushing back the commencement dates of the Airport Rail and Geelong as a response to ongoing costs pressures relating to engineering, materials, and labour.
“It’s hard to see what else they can do. There aren’t even any assets to sell, as the Kennett government did, if they had an appetite for it, which they don’t.”
Shadow finance minister Jess Wilson was asked on 3AW Radio on Monday whether the Victorian Labor government should call off hosting the 2026 Commonwealth Games, for which it has already set aside $2.6 billion.
“Every time the government embarks on a major project, it blows out. So if we’re going to proceed with the Commonwealth Games, and we hope we can … that we actually put some efficiencies around the project and make sure it does provide that legacy infrastructure,” she said in response.
However, Mr Eslake said putting on a “half-baked event” would cause “considerable embarrassment” for the Andrews government.
Ms Allan on Monday said the state government had a responsibility to drive down debt that was “taken on because of the urging of the Reserve Bank”, echoing comments made by the Victorian premier earlier this month.
UNSW economics professor Richard Holden said blaming Victoria’s debt woes on RBA advice made for an “odd argument”.
“Most of the debt they’re dealing with was not accumulated during the pandemic,” he said.
“So trying to pin it on anything to do with COVID seems to be sidestepping the harder reality of their fiscal position. This might sound harsh, but to be honest, it was the screw-up with hotel quarantine, which has nothing to do with the Reserve Bank, and everything to do with the Victorian government, that really led to Victoria’s bad situation.”
Economist and former Treasury official Robert Carling said the only road back for the Victorian government would involve a “long grind” of slower operating expenditure and cancelled or rescheduled infrastructure projects.
The state debt is more than NSW, Queensland and Tasmania combined and Victoria has officially overtaken NSW as the highest taxing state per capita.
During lockdowns, the $100 billion Victorian “Big Build” rolled on, including level crossing removals and money toward Andrews’ signature $125 billion Suburban Rail Loop.