Victoria is an economic basket case compared to the rest of Australia as a result of Melbourne being the world's most locked down city in a state without a resources boom.
As other Labor governments announce surplus Budgets, the state run by left-wing strongman Premier Daniel Andrews is targeting the rich, byhiking taxes on businesses, property owners and private schools in a bid to pay off - over 10 years - the $31.5billion in Covid debt it racked up during the pandemic.
This is the economic hangover of Melbourne in September 2021 overtaking Buenos Aires in Argentina as the world's most locked down city - with 267 days of restrictions.
Delivering his ninth Budget, state Treasurer Tim Pallas declared the well-off would be paying the two-part 'Covid Debt Levy' -targeting landlords and businesses in a bid to raise $8.6billion over four financial years. It will continue until 2033.
'We know some did better out of the pandemic than others – and it's only fair that those that did well contribute to the repayment effort,' he told Parliament on Tuesday.
This will be felt by future taxpayers who are still in primary school, and by their parents now with Labor removing the payroll tax exemption for 110 private schools, which could lead to higher fees.
Businesses with a turnover of more than $10million will pay more payroll tax while the tax-free threshold is being increased to $900,000 from $700,000.
A new levy will be imposed on 860,000 landlords, holiday home and commercial property owners.
Victoria is an economic debt basket case compared to the rest of Australia as a result of Melbourne being the world's most locked down city in a state without a resources boom (pictured is Bourke Street in July 2021)
Victoria's Labor government hikes taxes
PROPERTY OWNERS:An average landlord with $650,000 of land holdings would pay $1,300 a year as a new levy is imposed on 860,000landlords, holiday home and commercial property owners
BUSINESSES: Those with turnover of more than $10million will pay more payroll tax while the tax-free threshold is being increased to $900,000 from $700,000
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An average landlord with $650,000 of land holdings would pay $1,300 a year.
Even with these measures, Victoria's gross non-financial public sector debt is set to comprise213.2 per cent of revenue by 2024-25, and only keep increasing until 2026-27 even as future Budgets return to surplus.
That's more than double the 90.7 per cent level of 2019-20, covering some of the months before the pandemic.
The government's net debt was projected to hit $171.4billion by 2026-27, a far cry from $39billion in 2019-20, based on a combination of pandemic measures and transport infrastructure costs.
Mr Pallas declared Covid had pushed up Victoria's debt.
'We borrowed $31.5 billion to pay for the tools to confront the emergency – such as hospital equipment, testing centres and business support,' he said.
'Before Covid, we had the sort of debt that you take on to build, to invest, to grow an economy for the future.
'But with the pandemic emergency, we borrowed to keep Victorians safe.'
Mr Pallas said the Covid debt would take a decade to pay off, without mentioning the word 'lockdown' in his 12-page speech.
'Our plan is temporary, targeted and above all, responsible,' he said.
'It will raise an equivalent amount of funds, including interest, to address $31.5billion of Covid debt over the next 10 years.'
As other Labor governments announce surplus Budgets, the state run by strongman Premier Daniel Andrews is now hiking taxes on businesses, property owners and private schools in a bid to pay off - over 10 years - the $31.5billion it incurred in Covid debt during the pandemic
Even without the Covid restrictions, the Reserve Bank of Australia's 11 interest rate rises are set to hit Victoria's economy, as its inflation-busting monetary policy squashes consumer spending in Australia's second most populated state.
The state's Department of Treasury and Finance is expecting real gross state product - another term for economic growth - to halve to 1.5 per cent in 2023-24, down from 2.75 per cent in 2022-23.
Even if rate rises and higher state taxes don't cause a recession, Victoria doesn't benefit from the resources boom like other states, which means it doesn't have the swelling revenue to pay for the Covid lockdown debt.
Victoria was Australia's worst-affected state during Australia's 1991 recession - the last major downturn caused by excessive interest rate hikes.
Back then, another Labor premier from the Socialist Left faction, Joan Kirner, was in charge following the State Bank disaster caused by its merchant banking arm Tricontinental losing $2.7billion.
The state's first female premier took over in August 1990, two years after her Labor predecessor John Cain had won a third consecutive term.
Delivering his ninth Budget, Victorian Treasurer Tim Pallassaid the Covid debt would take a decade to pay off, without mentioning the word 'lockdown' in his 12-page speech to Parliament
Victoria was in such a mess that former prime minister Bob Hawke's federal Labor government had to sell off part of the Commonwealth Bank so it could raise capital to buy the ailing State Bank for $1.6billion.
More than three decades later, Victoria is also led by a Socialist Left Premier with Andrews last year winning athird term, thanksto electoral support from voters in Melbourne's more affluent eastern suburbs in seats like Ashwood and Box Hill.
On Tuesday, Victoria has announced a Budget deficit of $4billion for 2023-24.
This is occurring as other Labor states deliver Budgets in the black with iron ore-rich Western Australia this year announcing a Budget surplus of $3.3billion for the same financial year.
Queensland, another beneficiary of higher resource prices, last year announced a record Budget surplus of $5.2billion for 2023-23 thanks to coal royalties.
Federal Treasurer Jim Chalmers this month announced a Budget surplus of $4.2billion, the first for a federal Labor government since 1989.
But as iron ore and coal prices recede from historic highs, federal Treasury is expecting a Budget deficit of $13.9billion for 2023-24.
Even with these measures, Victoria's gross non-financial public sector debt is set to comprise 213.2 per cent of revenue by 2024-25. That's more than double the 90.7 per cent level of 2019-20, covering some of the months before the pandemic (pictured are Budget papers being delivered on Tuesday)
With Canberra facing its own debt problems, it will have less of an appetite to bail out Victoria as it did in 1990, ahead of a recession.
Making matters worse, Melbourne by a quirk of statistical boundary changes in 2021 overtook Sydney to become Australia's most populated city for the first time in more than 100 years.
The Australian Bureau of Statistics confirmed in April 2023 that Melbourne, with Melton's population included, had4,875,400 people - 18,700 more than Sydney.
An economic downturn in Melbourne would have dire consequences for the rest of Australia in a state that doesn't benefit from resources booms like Western Australia and Queensland.
As other states bounce back faster, as commodity prices eventually recover again, Victoria would be in a deeper economic hole without strong population growth, from overseas migration, to prop it up.
Melbourne was built on the 1860s gold rush but these days, there are more rivers of debt in Victoria.
