Labor was politically savvy in targeting property investors and big business

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The state budget has served as another reminder of how brilliant the Andrews government is at politics.

With Victoria recording the highest debt burden of any state, Treasurer Tim Pallas had to begin the unpopular task of financial repair. But it was never just a matter of balancing the books. For the government to deliver palatable budget repair it needed to limit expectations, build a narrative around the state’s soaring debt and identify a few villains to pick up the tab.

With a cup of tea in hand, Andrews mingled with journalists during the budget lock-up with confidence.Credit: Joe Armao

On that metric, the Andrews government deserves a triple-A rating.

Victoria is in a parlous financial position. Yet, the Andrews government has managed to stick to its election commitments, continue to deliver on most big infrastructure projects (albeit a bit more slowly) and cut the public service back only to its pre-pandemic level.

By refusing to rein in its own spending – which economists warn needs to happen to avoid increasing interest on the debt – the government had to find some villains, in this case big business and property investors, to pick up the tab.

Premier Daniel Andrews began laying the groundwork for a tough budget five months ago, making sure Victorians were under no illusions that their state-subsidised dinners at Nomad were a thing of the past.

But engaging in expectations management was never going to be enough; the government also needed to frame the debt crisis as a calamity that had befallen them, not one driven by eight and a half years of spending money it didn’t have.

So who did they blame? The obvious baddie was the Reserve Bank, and its governor Philip Lowe who told state leaders during a 2020 national cabinet meeting they should “go and borrow” to avoid unemployment, giving an undertaking that interest rates would be unlikely to rise.

Mortgage holders who were unwittingly conscripted to help bring down inflation have a right to feel aggrieved by the RBA’s rate hikes. But are we really meant to believe that the premier, with his own treasury department, was seduced into borrowing $24.5 billion to deal with the pandemic on that forecast alone?

It’s clear that using Lowe as a scapegoat is smart politics. Both Labor and Liberal MPs who campaigned for their parties in the recent Aston by-election will tell you it didn’t require many door knocks before the Reserve Bank and its governor were blamed for the cost-of-living crisis. It’s no coincidence that Andrews, Pallas and other senior ministers spent the pre-budget period reminding Victorians of Lowe’s interest rate forecast at every opportunity.

So with expectations managed, and an appropriate villain to point to, the government needed to make politically savvy choices about who would repay this debt.

Labor has long identified the political advantage in distancing itself from the top end of town. It also understands that voters under 40 – who now make up more than one-third of the Victorian electorate – have trust issues with big business and property investors. That made payroll and land taxes hikes sellable policies.

Big business claims the $4 billion tax on the wage bills of medium and larger businesses will curb their ability to hire workers. But for a generation of younger voters living through record low unemployment, big businesses aren’t viewed as a stable source of jobs, but rather as tax avoiders who benefitted from the pandemic. This made them an easy target.

Several Cabinet ministers say seeking agreement on land tax hikes was more challenging, with MPs rightly concerned that landlords would simply jack up rents. But as a policy, it plays on voter disenchantment with those who have built wealth through the property market – predominantly older generations. To the growing cohort of renters, a powerful voting bloc, these property investors who benefited from generous tax concessions are keeping them out of the housing market.

The government wouldn’t say any of this, of course. But it is this underlying sentiment that gave the government confidence that its budget was politically right for the times.

You can see this from the treasurer’s own speech. Handing down the budget on Tuesday, Pallas argued that it was only “fair” for those who “did better out of the pandemic” to help repay the COVID debt which stands at $31.5 billion – about 27 per cent of the state’s overall debt burden this financial year.

One might be left wondering who should pick up the tab for the other 73 per cent which has nothing to do with the pandemic. But don’t expect the Coalition to seize on that thread.

Struggling with internal disunity, its reactive claims that the budget was “mean” and “nasty” were predictable and unimaginative. And it is unlikely to resonate with the younger voters it so desperately needs to attract.

The budget books may detail the government’s assets and liabilities, but it is a political statement as much as it is a financial one. The Andrews government spent months sowing the seeds for its debt repayment plan while the opposition acts as if the politics of the budget is still up for grabs.

Annika Smethurst is state political editor.

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