- The budget paints a rosy picture of the future.
- Jobs, wages, the economy and population are all forecast to keep recovering strongly with an end to budget deficits in sight.
- But those forecasts are based on optimistic assessments of wages, inflation and population.
Budgets these days often feature big dreams that don’t end up coming true. Remember federal Treasurer Josh Frydenberg’s “back in black” effort of 2019?
The state budget handed down by Tim Pallas on Tuesday is likewise full of very encouraging predictions for Victorian workers, businesses and households.
Tim Pallas in his office with the budget papers on Monday.Credit:Justin McManus
By the middle of 2025, the Department of Treasury and Finance predicts, Victoria’s economy will be growing at a lively but sustainable 2.75 per cent, the state’s population will have surged past 7 million and about 3.7 million of us will be holding down a job.
The cost of living won’t be too much of a worry that year, state Treasury reckons, with the consumer price index tipped to be under control at 3 per cent and your wages growing at a healthy 3 per cent, while the real estate market will have cooled but not crashed.
The state’s public finances will be in much better shape on the back of all that renewed prosperity, with 2025’s budget expected to be, well, back in the black to the tune of about $650 million.
A new “future fund” established this year with seed capital from flogging off VicRoads’ licensing and registration arm for the express purpose of paying down the state’s huge debts – expected to hit $167 billion in 2025 – is forecast to have about $10 billion squirrelled away “in the medium term”.
It all sound great. But in times like these – with a war in Europe and a pandemic that might just flare up again – even Treasury’s concessions of a higher-then-usual degree of uncertainty seems to be understating the case.
Inflation is an obvious volatility. Prices are expected to stabilise in the coming months and years, but there is daylight between Treasury planners’ 3 per cent estimate of growth in consumer prices this year and the annualised 5.1 per cent announced by the Bureau of Statistics last week.
And while we all hope that wages will finally begin to grow again at something like the cost of living, we’ve been hearing for years from Victoria – and the Commonwealth Treasury too – that decent pay rises are just around the corner. They haven’t arrived yet.
It’s a fair bet that the decline in the state’s population through the COVID years will begin to reverse this year and it is likely that the healthy growth that turbocharged the local economy for a decade before the epidemic will be back within three years. But none of that is guaranteed.
Pallas’ plans for budget repairs are plausible and will help keep the international credit ratings agencies off his case, but they depend on a fair few assumptions, particularly the plan to get the public sector wage bill – which is now out past $33 billion – under control.
We’ve heard that one before, too, plenty of times.
Pallas said on Tuesday morning that he’s “quite often pleasantly surprised” by Victoria’s economic recovery from COVID.
Let’s hope the surprises remain pleasant. As Frydenberg learnt a couple of years ago, that isn’t always the case.
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