State and federal oppositions will draw encouragement from the byelection result. But neither has shown voters a coherent and credible budget and economic strategy.
Voters in the by-elections held in the Victorian state seats of Werribee (previously held by former Victorian Treasurer Tim Pallas) and Prahran (previously held by the Greens) appear to have sent two distinct messages to Victoria’s — and perhaps to Australia’s — major political parties.
First, and most clearly, voters are angry at the management of Victoria’s public finances by the Labor Governments led by Dan Andrews and, more recently, Jacinta Allan.
And rightly so. Under their watch, Victoria’s non-financial public sector has incurred cash deficits totalling $109 billion over the past decade (equivalent to 2.1% of Victoria’s gross state product, compared with an average of 1.3% for the other seven states and territories), and according to its most recent budget update plans to rack up another $60 billion over the four years to 2027-28. As a result, Victoria’s non-financial public sector debt has increased by $99 billion over the past decade, and will increase by a further $79 billion by June 2028, to almost $224 billion (equivalent to 30% of Victoria’s GSP, 10 percentage points more than for the other states and territories combined).
Second, at least in Werribee, voters remain to be convinced that the Liberal Party has the answers to Victoria’s budgetary woes. While Labor’s primary vote had (as at the close of counting on Saturday night) dropped by almost 17 percentage points from the last state election in November 2022, the Liberals’ primary vote rose by less than 4 percentage points. That’s a smaller increase than the one garnered by the Victorian Socialists (whose candidate had won 7.3% of the primary vote by close of counting on Saturday night). All up, independents and minor party candidates gained 42.3% of the primary vote — an increase of 12.9 percentage points from 2022 — and it would appear from the two-party-preferred vote that a majority of that went back to Labor on preferences. The Liberal candidate in Werribee at the 1992 election — which saw Jeff Kennett swept to power after a decade of fiscal incontinence under Labor Governments led by John Cain and Joan Kirner — won 34.8% of the primary vote, 6.1 percentage points more than the Liberal candidate at Saturday’s by-election.
Again, this is understandable. Thus far, the Victorian Liberals have failed to make a coherent and credible case against the economic and fiscal record of the Andrews and Allan Governments, being more consumed with internal factional battles than with the deteriorating condition of Victoria’s public finances and Victoria’s descent into the ranks of Australia’s poorer states. Nor have they presented any coherent and credible strategy for returning Victoria’s finances to a sustainable trajectory, or for reversing the slide in Victoria’s productivity and household incomes relative to the rest of Australia. And it isn’t clear that the changes in personnel flowing from the leadership change at the end of last year have significantly strengthened the Liberals’ capacity to rise to those challenges.
The Federal Liberals will undoubtedly draw some encouragement from the results of both by-elections, which suggest that they can potentially win large enough swings (on a two-party-preferred basis) in both traditionally safe Labor seats in outer suburbs and in inner-suburban seats.
It’s possible that voter anger at the fiscal mismanagement by the Victorian Labor Government will “spill over” at the forthcoming Federal election, as it did in 1990 . But there’s also a cautionary lesson from that election – the Coalition gained a swing of 4.9% in Victoria, delivering it an additional eight seats in the House of Representatives, but it suffered a 0.5% swing against it in the rest of Australia, and as a result fell six seats short of winning a majority in the House of Representatives (despite winning the overall two-party-preferred vote by 0.2 of a percentage point).
To date, the Federal Coalition has failed to put forward a coherent and credible strategy for returning the federal budget to surplus, or for improving Australia’s cellar-dwelling productivity performance. Its only formally announced policies — to establish a government-owned corporation to build seven nuclear power stations, and to exempt small businesses taking their employees out to lunch from fringe benefits tax — will both add to budget deficits, in the former case by a very large amount over a long period of time. “Cutting 36,000 public service positions” will not save a large amount of money – cash payments to the more than 294,000 people currently on the Federal Government’s payroll represent less than 6¼% of total federal spending (and that’s without allowing for the likely cost of replacing at least some of those positions with more expensive consultants, as occurred under the previous Coalition Government). And saying — as Opposition Leader Peter Dutton did earlier this month — that a Coalition Government would announce where it would cut spending, and by how much, after it is elected is an insult to the intelligence of the electorate.
In other words, both in Victoria and federally, the Liberal and National Parties still have a lot of work ahead of them if they are to present a persuasive case that they should be trusted with the keys to the state and Federal Treasuries. The Victorian Liberals have just over 94 weeks in which to do that. The Federal Coalition has, at most, 14.
Republished from the Australian Financial Review, Feb 09, 2025
Saul Eslake worked as an economist in the Australian financial markets for more than 25 years, including as Chief Economist at McIntosh Securities (a stockbroking firm) in the late 1980s, Chief Economist (International) at National Mutual Funds Management in the early 1990s, as Chief Economist at the Australia & New Zealand Banking Group (ANZ) from 1995 to 2009, and as Chief Economist (Australia & New Zealand) for Bank of America Merrill Lynch from 2011 until June 2015.
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