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National

RMIT ABC Fact Check

The Victorian Liberals say the state's debt is larger than any other state and larger than NSW, Queensland and Tasmania combined. Is that correct?

Victoria David Davis Tasmania Liberals Queensland Fact Check Liberal Party SA RMIT ABC Fact Check ACT

The claim

A central theme of the Victorian Opposition's election campaign has been saying Labor created a "debt disaster" for the state.

The release of the Department of Treasury and Finance's pre-election budget update prompted a fresh attack from the Liberals' shadow treasurer, David Davis.

"The Pre-Election Budget Update (PEBU) has confirmed Labor's debt disaster for Victoria with net debt set to increase to $165.9 billion by 2025," Mr Davis said in a statement on November 10.

"This is more than the total of New South Wales, Queensland and Tasmania combined."

Several versions of the claim have been made by Mr Davis, Opposition Leader Matthew Guy, the Liberal Party campaign headquarters and shadow transport infrastructure minister Matthew Bach.

They include that Victoria's debt "has blown out to $167.5 billion" and "with Victoria now $167.5 billion in debt".

In some cases Victoria's finances are compared with New South Wales, Queensland and Tasmania combined. Mr Guy and Mr Davis have also said Victoria's net debt is "the biggest debt of any state in Australia".

So, what is Victoria's net debt now, what is it projected to be in the coming years and how does it compare with the actual and projected debt of other states?

RMIT ABC Fact Check runs the numbers.

The verdict

Mr Davis's claim is gilding the lily. So are similar claims from Mr Guy, Mr Bach and the Liberal Party organisation.

It's important to note that Victoria's net debt in June 2022 was $99.98 billion.

It is not yet the $165.9 billion it is projected to be in June 2026, despite Liberal Party claims it has already "blown out" to similar magnitudes and Mr Davis's claim that it will reach that level by 2025.

Nonetheless, Victoria's June 2022 debt sits head and shoulders above any other state or territory in nominal terms.

But adjusting for the size of each state economy, using a debt as a proportion of gross state product as a measure, Victoria and the Northern Territory are neck and neck, with other states still far behind.

Victoria's June 2022 debt is also larger than the combined total of NSW, Queensland and Tasmania in both nominal terms and as a share of gross state product. However, the gap is larger now than it is projected to be in June 2026.

The debt in Victoria in June 2026 is projected to be larger than any other single state, including the NT, on both measures.

But projections for four years in advance are far less reliable than actual and estimated figures for the most recent financial year. The Liberal Party could have made the same argument sticking to these more accurate figures, rather than reaching for higher numbers which may never come to pass.

Net debt in the general government sector

As Fact Check has previously written, net debt is a measure of a government's accumulated borrowings.

It takes into account the offsetting effect of selected financial assets, thus providing an indication of a government's ability to cover its liabilities.

The number Mr Davis quoted from the pre-election budget update was net debt of the general government sector (GGS).

According to a Federal Treasury publication, the GGS covers "all government departments, offices and other bodies that fulfil the functions of government as their primary activity".

It is a subset of the broader public sector which excludes non-financial public corporations (such as Australia Post) and public financial corporations (such as the Reserve Bank).

Experts have previously told Fact Check assessing GGS debt allowed for a consistent comparison across jurisdictions.

Size matters

When making debt comparisons across states and territories, the relative size of each economy is relevant. The Australian Bureau of Statistics regularly publishes state accounts, which it explains contain estimates of state and territory GSP.

For example, the size of Victoria's economy, expressed as GSP, was $515 billion in June 2022 — more than 13 times the size of Tasmania's $38 billion GSP.

Therefore, as Fact Check has previously explained, debt indicators need to be compared in a way that accounts for the different sizes of each jurisdiction.

To do this, Fact Check has also considered GGS net debt as a percentage of GSP.

Finding the data

Data reporting on nominal net debt figures for each state and territory can be found in their respective budget and budget-related papers.

Where possible, Fact Check has relied on "actual" figures, normally published in a final budget outcome document several months after the end of the financial year.

These figures are available for 2021-22 for Victoria, Queensland, Tasmania, NT and WA.

Some of these figures were released after some of the Liberal Party's claims were made.

In the remaining states and the ACT, Fact Check has relied on "estimated actual" figures from the most recent annual budget papers, normally published shortly before the end of the financial year.

The most recent annual budget papers for every state and territory also provide forecasts on net debt over the four years to 2025-26. In the case of Victoria, the latest figures are available in the 2022 PEBU.

The ABS does not publish forecasts of GSP. The PEBU in Victoria and the budget papers in NSW, SA, Tasmania and ACT report on net debt as a percentage of GSP, including as forward estimates.

In WA, Queensland and the NT Fact Check has made its own calculations on the basis of GSP growth forecasts contained in the budget papers.

Victoria's debt

Victoria's 2021-22 Financial Report, published on October 14, shows that net debt on June 30, 2022 was $99.98 billion.

The most recent official projections for the next four years were published in the November 10 pre-election budget update, which says: "Net debt is expected to be $116.0 billion at June 2023 and $165.9 billion by June 2026."

This was a slight improvement on the 2026 estimate contained in the May budget of $167.5 billion.

But while the number Mr Davis quotes close to the latest update, his timing is incorrect.

Clearly, Liberal Party claims that Victoria's net debt has "blown out to" or is "now" over $165 billion are also not supported by the budget papers.

The budget update also says: "As a proportion of GSP, net debt is projected to be 20.3 per cent at June 2023 and 24.6 per cent by June 2026."

The largest debt of any state or territory?

The Victorian Liberal Party's election policy website claims Labor have amassed the "biggest debt of any state in Australia" under Premier Daniel Andrews's leadership.

Indeed, as the chart below illustrates — on a nominal basis — Victoria's $99.98 billion debt was by far the largest of any state or territory as at June 30, 2022.

Victoria's net debt was almost double that of NSW's $53.54 billion (as per the most recent official estimate) and was more than five times greater than WA's $19.27 billion.

By June 2026, the forecast of Victoria's debt reaching $165.9 billion remains well ahead of the $114.81 billion and $39.21 billion predicted respectively in the NSW and Queensland budgets.

But when net debt is considered as a percentage of GSP — accounting for the relative size of each state or territory's economy — the picture changes.

Net debt as a proportion of gross state product by state and territory

As at June 2022, the Northern Territory's net debt as a percentage of GSP was the largest at 19.42 per cent, narrowly ahead of Victoria's 19.4 per cent.

Meanwhile, in third place, South Australia's net debt was 13.6 per cent of GSP ahead of the ACT at 10.7 per cent and NSW at 7.8 per cent.

Over the forward estimates, by June 2026, Victoria's forecast net debt of 24.6 per cent of GSP is predicted to eclipse the NT's 22.09 per cent.

Combining state totals

Mr Davis claimed Victoria's net debt would be greater than "the total of New South Wales, Queensland and Tasmania combined" by 2025.

Combining the dollar value of NSW, Queensland and Tasmania's net debt shows that in fact, as at June 2022, Victoria's net debt of $99.98 billion had already surpassed the combined total of $65.81 billion of the other three Eastern states.

By 2026, Victoria's $165.9 predicted net debt is ahead of the forecast combined total for NSW, QLD and Tasmania of $159.2 billion.

As the chart below shows, while Victoria is predicted to remain ahead of the other Eastern states over the forward estimates, the gap narrows with a difference of $6.7 billion in 2026 compared with $34.17 billion in 2022.

This trend can also be observed when net debt is considered as a percentage of GSP.

In 2022, Victoria's debt was 19.4 per cent of GSP. That compares to the other eastern states' combined total of their combined GSP of 5.56 per cent.

By 2026, this gap is forecast to narrow a little with Victoria's debt totalling 24.6 per cent while NSW, QLD and Tasmania are forecasting a combined 11.5 per cent of GSP.

This change is in part driven by an almost doubling of NSW's debt predicted to rise from 7.8 per cent of GSP in 2022 to 13.7 in 2026.

So, by reaching for the highest nominal number in Victoria's PEBU statement of $165.9 billion predicted by June 2026, Mr Davis' claim is actually less convincing than it is as of 2022.

Nevertheless, on both the basis of dollar value and as a percentage of GSP, Victoria's net debt is indeed larger than NSW, Queensland and Tasmania combined and the estimates of the four governments suggest it will remain this way in 2026.

Is there value in comparing debt levels?

While the relative size of debt is often used as a political weapon, experts told Fact Check quantifying debt and comparing it with other states says little about the manageability of that debt.

During a leaders' debate on Sky News four days before the election, Mr Guy said an audience member's question about debt was important because it went to "how we can actually afford to do these things" such as improving hospitals and addressing cost of living issues.

What a government can "afford" to do depends on a range of issues, including its forecast revenue (and reliability of revenue streams), other expenditure commitments, interest rates, inflation, and economic growth prospects.

It also depends on its priorities.

As Mark Humphery-Jenner, and associate professor in the School of Banking and Finance the University of New South Wales put it: " ‘Affordable' means different things to different people. Burning a pile of money might be ‘affordable', but it would not be productive or responsible."

Director of Curtin University's Bankwest Curtin Economics Centre Professor Alan Duncan previously told Fact Check what borrowed money was used for was also relevant to affordability saying debt could be used as an "instrument to drive growth".

"Just because you have a higher debt, doesn't actually mean to say you're in strife financially," he said.

Therefore, questions about managing debt and the affordability of projects depend on a broad range of factors that are beyond the scope of this fact check.

Furthermore, projections about future debt levels are exactly that. These estimates are frequently wrong and can be dependent on external factors, such as commodity prices or other international forces.

Principal researchers: Sonam Thomas and Leonie Wood

Sources

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