Economists question Victorian Liberal plan to deliver surplus while cutting taxes

Coalition's economic plans would worsen troubled Victorian budget, economists warn In short: Two leading economists have wanted Victoria's troubled budget would get worse under a Coalition government, because plans unveiled so far fail to cut enough spending. RMIT professor of public policy David Hayward and independent economist Saul Eslake have both called for greater transparency over the Victorian Coalition's budget repair plan. Opposition Leader Jess Wilson is promising to deliver a cash surplus for Victoria by 2032, partly funded by a 10-year freeze on public service hiring. Victoria's troubled budget would get worse under a Coalition government, two economists have warned, because plans unveiled so far fail to cut enough spending while reducing taxes. The shortfall could blow a $9 billion hole in the state's finances, according to one estimate. Opposition Leader Jess Wilson has so far promised to replace the controversial emergency services volunteers fund with the old fire services property levy, cut land tax, remove payroll tax on private schools and remove stamp duty for first-home buyers. Ms Wilson is promising to deliver a cash surplus by 2032, partly funded by a 10-year freeze on public service hiring. RMIT professor of public policy David Hayward, who conducted the analysis that found the $9 billion costings hole, said the plan did not add up. "It's all contradictory," he said. "She's led with something like $7 billion of tax cuts over four years, while promising in five years' time to return the budget to a cash surplus." He identified spending cuts of $6.4 billion but also $3.4 billion in new spending initiatives. "There's savings, but they don't add up enough to compensate for the massive tax cuts," he said. "The budget picture is not very good at all, and it gets worse." He also warned that a promise to pause the Suburban Rail Loop, where tunnelling is underway and $7 billion has already been spent, would blow a huge hole in the budget. Wilson says budget plan 'credible' The opposition has said one way it would fix the budget was through a plan to "end waste", including the $15 billion that one estimate said had been lost to corruption of Big Build infrastructure projects. The party this year mounted a successful campaign against "waste" in the public service, including contracts for office plants and coffee machines for staff. Dr Hayward said this was "small beer" in the scheme of a budget worth more than $100 billion. Pre-polling centres open in just over four weeks, and it is understood the Coalition will spell out more savings measures before then. But some Liberals have privately conceded the current plan is flimsy. Ms Wilson refuted criticism of Coalition costings, stating that the opposition had announced more than $24 billion worth of savings. "Only my team has a credible plan to actually see this budget repaired, to ensure we start paying down the debt in this state," she said. "Labor have announced no significant savings. Other policies and other parties have no costings attached to them. "Only my team has a credible economic plan: a 10-year vision for this state, policies that are costed and most importantly, a plan to return to cash surplus so we can stop borrowing and ensure that the interest bill becomes sustainable again in this state." Dr Hayward said it was "really important" the opposition lay out a framework for delivering the cash surplus by 2032. "If debt is important to them, tell us how they're going to reduce that debt. Be clear. Don't use vague statements,'' he said. Opposition urged to 'come clean' on economic plan Independent economist Saul Eslake agreed that the Coalition could not achieve a cash surplus by promising tax cuts while continuing to spend. He said Ms Wilson needed to "come clean" on her plans to get Victoria's finances on a more sustainable footing. "If they get into office having only promised spending increases and tax cuts, then either they're not going to deliver the changes required to put Victoria's finances on a sustainable trajectory, or alternatively they're going to have to break promises they made during the election campaign," he said. To fix Victoria's budget, Mr Eslake said Victoria needed a combination of "spending cuts and revenue increases". "There isn't a lot of scope for tax increases in Victoria, because it's already by a wide margin the highest-taxing state," he said. "The analysis undertaken by the Grants Commission suggests that there's considerable scope for cutting spending in various areas of the budget, without Victorians having to suffer worse than average levels of public services, and in order to make expenditure savings." Mr Eslake was also critical of recent comments from Ms Wilson, who last week said "Victorians can't trust the budget papers". "I think it's simply wrong to suggest that the books have been cooked. I certainly agree that the current government has made a dreadful mess of Victoria's finances, but I don't think they've lied about it,'' he said. He urged the Coalition to introduce some fiscal rules, including targets for debt and annual growth caps for expenditure. Meanwhile, the Victorian Chamber of Commerce and Industry has called on politicians from all sides to focus on "disciplined, targeted policy" in the lead up to the election, warning the state is in a debt crisis. The organisation's acting chief executive Amelia Bitsis said Victoria could not "spend its way out of a debt problem". "Election commitments that increase spending without delivering a clear economic return will only make the challenge ahead greater," she said. "The priority must be restoring fiscal discipline, rebuilding confidence, and creating an environment where businesses can invest, employ and thrive."