Jimonomics and The Budget.

This treesymbolises how Victoria became a financial basket case
After300 years of withstanding the elements, the River Red Gum in Bulleen forced theNorth East Link to be redesigned as the cost of the project blows out bybillions of dollars.
Patrick DurkinBOSS Deputy editor
May 10, 2024 – 12.42pm
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he 300-year-old river red gum in Melbourne’s Bulleen is the height of a seven-storey building and pre-dates white settlement. Victoria’s 2019 tree of the year is a symbol of everything that is wonderful, but possibly wrong, about the state of Victoria.
About 20 metres high, with a circumference of six metres, the tree was saved by locals when the rest of the block was cleared to make way for a Caltex service station.
In 2019, the tree was set to be felled to make way for the North East Link, which back then was expected to cost a modest $15.8 billion, up from an initial $10 billion.
The 300-year-old River Red Gum inBulleen wins Victoria's tree of the Year in 2019. National Trust of Australia (Victoria)
It sparked a community andcouncil campaign, with one 94-year-old resident telling 3AW radio he stopped aman with a chainsaw by brandishing a gun.
“I grabbed my BRNO rifle outof the car, ran over and said: ‘Touch that tree and I’ll kneecap you’,” NevinPhillips said at the time.
The tree won out. “The treehas great significance to the local community and the design for North EastLink was updated to avoid it,” the Victorian government announced after PremierJacinta Allan was pulled into the controversy.
Who cares ifthe costs blow out if the state will pick up the tab?
Allan was also battling localcouncils that had joined the fight to protect parks, tennis courts and popularwalking and cycling routes, including the Boroondara Tennis Centre (moved in a$21 million deal), Melbourne’s much-loved Italian Veneto Club and ovalsbelonging to Marcellin College, Trinity Grammar and Carey Baptist GrammarSchool. A new wetlands and Indigenous cultural precinct was also added.

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Politicallyit is hard to argue with changes that benefit the community even when they comeat a significant cost. As former premier Daniel Andrews told AFRWeekend when questioned about a $96 millionpackage that included 60,000 Little Anglers Kits for primary school aged kids: “Well,if you’re opposed to little kids getting fishing rods, that’s fine, I’m not.”
In late December last year,Allan revealed the North East Link had blown out by another $10.3 billion. Thepremier blamed the majority – $3.1 billion – on higher costs for asphalt, steeland concrete caused by the “pandemic and Ukraine war”.
Another $2 billion was toextend the tunnel to 6.5 kilometres, $2.5 billion was for upgrades to the M80and Eastern freeways, and $600 million was for noise walls.
CFMEU control
TheAustralian Financial Review this week spoke to one seniormanager who worked on the project and revealed that builderswere told they needed to use agreements with the militant CFMEU, despite themoderate Australian Workers Union having primary coverage of civil projects.
Contractors budgeted “atleast” 15 per cent extra for a project that was CFMEU-run, and up to 30 percent due to disruptions.
The manager, who asked not tobe named, agreed with transport experts that there were also problems in thetender process and contracts that provide the Victorian government wears allthe downside risk.
Prime Minister Anthony Albanesewith CFMEU workers at Thursday’s North East Link announcement. Joe Armao
Toll road giant Transurbanruled itself out for the job and left just two other bidders with SparkConsortium awarded the contracts in 2021.
“The contractor doesn’t losemoney,” the manager said. “There’s very minimum incentive for constructioncompanies to run the job efficiently and effectively.
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“Who cares if the costs blowout if the state will pick up the tab?”
Prime Minister AnthonyAlbanese was in Melbourne on Thursday delivering an extra of $3.2billion – a total of $5 billion – for the most expensive road in the state’shistory. Federal Opposition spokesperson Bridget McKenziedescribed it as “a bailout”.
Heroic assumptions
But the treeand the $26.1 billion toll road are a symbol of how Victoria’s finances-- laid bare in Tuesday’s statebudget – became, in the words of economist Saul Eslake, a“basket case”.
Victorian Treasurer TimPallas delivered a $15.2 billiondeficit, and revealed net debt will grow from $156 billion next yearto $188 billion by 2028 with a daily interest bill of $26 million.
Net debt as a share of grossstate product is projected to pass 25 per cent of the economy by 2026, farhigher than the 16 per cent peak reached in the post-Cain-Kirner recession in1993.
Prime Minister Anthony Albanese andPremier Jacinta Allan touring the North East Link site on Thursday. Joe Armao
In contrast, WestAustralianTreasurer Rita Saffioti this week handed down a$3.2 billion budget surplus. Another $8 billion in surpluses areforecast over the next three years.
WA’s debt of $32 billion isjust 6.5 per cent of their gross state product. More than one business contactfrom WA told AFR Weekend most are left mystified byVictoria’s parlous financial state, saying it is considered a bit of a joke outwest.
Despite the debt, Pallas avoided any reallydifficult decisions on Tuesday. There is no hold up in fundingfor Allan’s pet projects, the $125 billion Suburban Rail Loop,the $14 billion Metro Tunnel, and the $10.2 billion West Gate Tunnel.
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There was a pause inMelbourne’s $10 billion Airport Rail Link – which the Allan government hasnever strongly backed.
Pallas says the main strategyis to grow the economy.
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“A growing economy burns offthe burden of debt,” he said this week.
The plan relies on a bullish5 per cent growth projection and falling interest rates.
Ratings agency Moody’s, forone, is sceptical of Pallas’ assumptions that economic growth will outstripgovernment spending for the first time in 15 years.