Many years ago, I read a book about the final collapse of the Cain-Kirner government. It was a collection of essays. by then-prominent journalists and academics. Essentially it was a laudatory panegyric by committed Keynesians who saw nothing wrong in the many fiscal and governance failures by Cain-Kirner and their ministers.
Instead, they placed the blame squarely on Paul Keating, the evil economic rationalist who, as Federal Treasurer, refused to bail out Victoria, and who used his leverage to block the sale of the State Savings Bank of Victoria to the Commonwealth Bank until the Victorian Labor Left were willing to support the privatisation of the Commonwealth Bank in exchange.
It was not a great time to live in Victoria, the period from late 1989 through to late 1992. There was a recession and a number of major financial failures, at least two of whom (the Tricontinental merchant bank and VEDC) were due to serious shortcomings in governance by the state government.
The sale of the State Bank (and subsequent disappearance of its brand, subsumed into the Commonwealth Bank) is something which many of us felt deeply. I still miss it.
The sudden announcement today by the technocratic Andrews government that they were abandoning the 2026 Commonwealth Games due to cost overruns is only the tip of an iceberg which is starting to collide with SS Victoria.
The Andrews government, in its commitment to Keynesian policies, has been spending extravagantly for many years on its major infrastructure projects, collectively referred to as The Big Build. Lots of roads, railways and tunnels are either under construction or proposed.
Until very recent months, the Victorian Public Service has been considerably expanded in size and cost, and converted into an apparatus of the Premier’s office.
Small amounts of cash have been splashed out in handouts to the public – such as the annual payment to people who go online and do a half hearted comparison of energy prices to supposedly save on their bills. And there was the subsidy to people who chose to eat out in the city after the plague was aver.
At the same time as all that, he has found the funds to act as the white knight to the Karens at Netball Australia, buying the right to host their grand final for the next few years for a few million dollars. Similarly, the 2026 Commonwealth Games has been touted as a way of increasing tourism to regional centres and provided improved sporting infrastructure.
All of these things cost a lot of money, and there has been no abatement in the spending until this year. The figure of $180 billion dollars (ie $30,000 for every man, woman and child in Victoria) has been raised as the current debt.
This debt requires considerable austerity – both more responsible spending and the sudden recent introduction of higher property taxes which unfairly target those people who choose to own modest investment properties.
The only thing that surprises me about the cancellation of the Commonwealth Games is that they decided to actually make this hard decision, rather than continue on the high spending pathway and make less visible cuts elsewhere.
The implications of the decision to cancel the Commonwealth Games go a lot further than the possibility of tens of millions of dollars in compensation to the Commonwealth Games Federation.
The first implication is that of sovereign risk. When a government decides not to honour its word, it goes much further than the persons or organisations who have struck an agreement with that government – it means that other possible investors and stakeholders will think twice about doing business with that government or indeed operating in that jurisdiction. Because the Andrews government will not honour its word, it can not be trusted, and Victoria will be considered as a far less safe place to do business in than it was before.
The second implication is in the reputational damage to Victoria (and indeed Australia) in relation to prestigious events. Aside from the cancelled Commonwealth Games, Melbourne hosts the Australian F1 Grand Prix, and the Australian Tennis Open. And Chairman Dan’s Labor stablemate in Queensland is going to host the 2032 Olympic Games. The organisers of those events would be getting nervous indeed as a result.
Melbourne does not have the spectacular sights that Sydney has. It relies on being an events city – of being the sporting capital of Australia (and possibly the world) and on hosting other major non-sporting events to attract tourism (eg our highly woke Comedy Festival and the International Film Festival). This reputation has now been seriously shaken by this decision, and could take considerable time to recover.
The final implication that comes to mind is that the Andrews government has promised a lot to regional centres with the circus which is the Commonwealth Games. Supposedly, this is all much needed sporting infrastructure and tourism support for regional areas. Obviously the decision has been made the this is not so important after all.
But all of this, when you think about it, is about the money and about irresponsible behaviour. Spending the state into deep debt, year after year, is going to have consequences, just as it did in the late 1980s. Those consequences are now starting to manifest themselves, in the form of higher taxes and reduced services.
Expect even higher taxes and more reduced services for the foreseeable future. And reduced investment and business activity in Victoria.
Lost For Words! 