Debt levels were on their way to $583 billion by 2024, more than double the $270 billion states and territories were carrying in 2019.

Senior credit analyst Anthony Walker said the combination of large deficits and growing debt meant the fiscal impact of the pandemic would linger at the state level for years.

“Some states could take generations to recover,” he said.

“The fiscal hit has been enormous, with all states suffering fiscal shocks as a result of attempts to protect their residents’ health. Government-imposed lockdowns that suppressed the pandemic came at great economic and fiscal cost.”

The biggest hit is likely to be felt in Victoria which is forecasting a deficit of $23.3 billion this year and net debt to hit $154.8 billion by mid-2024.

Mr Walker said almost every other state would also struggle to get their debt levels down.

“It is hard to see any state with the exception of WA and potentially NSW [via asset transactions] reducing debt as a proportion of revenues to pre-COVID levels for many years. Even then, NSW may only achieve this towards the end of the decade at best,” he said.


All governments are ramping up expenditure on infrastructure as a way to support their economies and bring down unemployment.

But S&P warns even this will be difficult. Infrastructure spending this year is expected to be more than $24 billion or 40 per cent up on last year, with Mr Walker warning states were unlikely to get all their projects completed on time.

Heavily indebted states will get some ongoing support, with well-respected Westpac chief economist Bill Evans on Monday predicting the Reserve Bank would extend its quantitative easing program by buying another $100 billion of government debt in the second half of next year.

The RBA started buying a first tranche of $100 billion in federal and state government debt last month in a bid to drive down the interest rates on that debt.

The program is due to finish in June but Mr Evans said the bank would likely extend the program with an extra $100 billion next year and then $50 billion in the first half of 2022.

“The RBA would find it difficult to argue for the government maintaining stimulus and withdrawing its own support by eliminating or even reducing its quantitative easing program,” he said.

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