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The Victorian government has dismissed concerns about its huge debt problem after a credit report forecasts that the state’s net debt will surge to $226.2 billion (US$145 billion) in the next four years.
Global credit rating giant Moody’s has released a report into Victoria’s credit outlook, which casts doubt on the state’s ability to sustainably manage its debts and raises fears of another credit downgrade.
According to the Moody’s forecasts, Victoria’s net debt was projected to reach $226.2 billion by mid-2027, an 85 percent jump from $122 billion in 2022.
It was also much higher than what the Victorian government forecasted in its May budget, which is $171.4 billion for the same period.
If Moody’s forecast amount is shared among Victoria’s population (6.5 million), each resident will have to shoulder a debt of around $34,800.
At the same time, interest on government debt was predicted to increase to nearly $8 billion in the next four years.
“Despite the underlying strength of the Victorian and broader Australian economy, the state’s debt burden is unlikely to stabilise before the end of the fiscal year ending in June 2028,” the report said, according to The Herald Sun.
“This rapid (and prolonged) growth in debt amid higher interest rates will raise borrowing costs and weaken debt affordability over time, limiting headroom under current rating tolerances.”
Moody’s also noted that Victoria could face higher risks of a credit downgrade if the state experienced any unexpected debt surge in the coming period.
“The state has large debt funding requirements over the next four years, which combined with rising interest rates and the prospect of them remaining high whilst the state’s net debt grows, will test institutional capacity as the state targets fiscal repair over an extended period of time,” the report said.
In February 2021, Moody’s removed Victoria’s AAA credit rating status and later downgraded it to AA2 in May 2022.
However, the credit rating agency has continued to assess Victoria’s economic outlook as “stable” for over a year.
“Victoria’s stand-alone credit profile has weakened in recent years and will continue to do so as sustained infrastructure spending continues to drive debt higher,” its July report said.
Victorian Government Downplays Moody’s Forecast
After Moody’s report was released, Victorian Treasurer Tim Pallas assured the public that the state’s net debt would head toward the $171.4 billion forecast in the May budget.
“I almost choked on my Weeties—they pulled out the special sauce for this one,” he said.
The treasurer explained that the amount projected by Moody’s was the gross data and did not take into account trading revenue from public entities such as water and insurance agencies.
He was also confident that Victoria would not be subject to a credit downgrade in the near future.
“If you look at the commentary from both Moody’s and Standard & Poor’s, I think it’s pretty clear that the general perception is the state still has headroom with regard to its existing credit rating,” Mr. Pallas said.
“But look, we have to work with this. There’s no question about that.”
Meanwhile, Shadow Treasurer Brad Rowswell accused the Victorian Labour government of hiding “Victoria’s true debt position,” saying that the state residents have to rely on a credit rating agency to find out the truth.
“Victoria is the highest taxed state in the nation, with more debt than Queensland, New South Wales and Tasmania combined,” he said in a social media post.
“The Andrews Government