Can an Australian State go bankruptcy?

Can an Australian State go bankruptcy?

To manage a healthy Government’s budget is similarly to the managing of the Profit & Loss Account of a commercial enterprise. Under mis-management and poor strategy, crisis point may come earlier, and bankruptcy is a feasible scenario!

Look at below realities and numbers:

High Debt Levels: Victoria’s net debt is projected to reach $187.8 billion by 2027-28, significantly higher than other Australian states. Interest payments alone amount to approximately $25 million daily;

Infrastructure Costs: Large-scale projects like the Metro Tunnel, the Suburban Rail Loop (SRL), and the West Gate Tunnel have experienced significant cost overruns. For example, the SRL’s initial phase is expected to cost $34.5 billion, with potential further blowouts threatening Victoria’s credit rating and financial stability;

Economic and Population Pressures: A growing population (expected to exceed 8 million in Greater Melbourne by 2050) demands substantial infrastructure investment. While such growth offers long-term economic potential, it has placed immediate strain on the state’s budget; and

COVID-19 Legacy: Prolonged lockdowns during the pandemic resulted in higher borrowing to sustain public services and health measures. This fiscal shock left Victoria in a weaker position compared to other states, which have since recovered more robustly.

My observations:

Victoria’s economic growth model (or business model) relies on continuously bringing in large numbers of people (migrants, overseas students??), and then building houses, building infrastructure (more debts), and providing services for these people (i.e. this is similarly to many bad performing enterprises that they borrow a lot of debts for expansion of sales and/or production capacity).

Over the past 20 years, Victoria’s trade balance has experienced considerable fluctuations, marked by a persistent trend of trade deficits. This persistent trade deficit is a structural challenge, reflecting Victoria’s reliance on imports in key economic sectors and insufficient growth in export capabilities. Addressing this may require strategic shifts, such as promoting local production or diversifying export markets (i.e. This may be related to the wrong strategy or lack of competitive edges of commercial enterprises in Victoria)

In September of 2023, Birmingham, the second largest city in the UK, declared bankruptcy because it could not bear its debts. This scene was shocking !! Now look at Victoria’s debt situation. The huge deficit is overwhelming, public services must continue to be maintained, and life is getting more difficult day by day.

If you are interested to discuss more about how to grow your business today, avoid the crisis point and develop a practical business growth strategy, please write email to below. Thank you. 😊

Joseph Tse
Vice President (Venture Incubator & Business Growth)
副总裁 (风险投资孵化器与业务增长)
Email: [email protected]

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