Victorian agencies report billion dollar loss as new documents outline financial strain

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Key points

• More than 50 state government agencies and services ran deficits last financial year, with combined operating losses above $1 billion.
• In 2022-23, inflation drove up operating costs and rising interest rates put pressure on the state’s balance sheets.
• The Health Department recorded a $415.5 million loss based on transactions throughout the year.

More than 50 state government agencies and services ran deficits last financial year, with hundreds of annual reports released this week detailing combined operating losses above $1 billion.

Ahead of the end of the parliamentary year, the Allan government on Wednesday tabled more than 240 reports outlining the financial statements and operations of its own departments and bodies.

Victorian Treasurer Tim Pallas.Credit: Eamon Gallagher

They provide the most recent snapshot of the economic challenges state agencies faced in 2022-23 as inflation drove up operating costs and rising interest rates put pressure on the state’s balance sheets. A mid-year report into the state budget will also provide an update on Victoria’s finances by the end of the year.

An analysis of the reports has revealed that more than 50 government bodies ran losses in 2022-21, including a dozen regional and rural health services that posted deficits between $10,000 to $5 million.

One of the biggest operating deficits was reported by the Department of Health, which recorded a cash surplus when accounting Commonwealth funding held in reserve, but recorded a $415.5 million loss based on transactions throughout the year.

The department’s report states that the Victorian government considers the net result from transactions to be the best measure of financial performance because it is more reflective of government policy and excludes other changes beyond their control.

The Health Department provided PPE and RATs for free across health services, contributing to a $415.5 million loss.Credit: Justin McManus

The $415.5 million loss was largely driven by costs relating to the pandemic, including providing personal protective equipment, pharmaceuticals and rapid antigen test kits to health services. These items were provided free of charge throughout the year.

Capped fares on V/Line services led to a 70 per cent surge in the number of passengers compared to the year before. But the extra fare revenue was not enough to offset costs and the regional rail operator posted a loss of $23.4 million.

WorkSafe recorded a loss of $176 million, despite receiving a cash injection of $300 million from the state government to offset the rising cost of providing compensation for workers. The Victorian Managed Insurance Authority also reported a $115.4 million deficit driven by claims made because of the collapse of residential building companies and the recovery efforts from damaging floods in October 2022.

The Department of Families, Fairness and Housing also reported a $264.7 million deficit from transactions driven largely by losses recorded by a $222.3 million loss at the state’s public housing operator, Homes Victoria.

Opposition finance spokeswoman Jess Wilson said the financial sustainability of key Victorian agencies was deteriorating.

“Whether it be the state budget or the budgets of government agencies, it’s clear Labor cannot manage money or be trusted to deliver services in a sustainable manner for Victorian taxpayers,” she said.

“The mismanagement of these agencies has consequences. Victorians are paying dramatic increases in WorkCover premiums, housing insurance premiums and even new taxes on a weekend away.”

Other agencies to report losses in the 2021-22 financial year, including VicForests and Fire Rescue Victoria, have not yet tabled their annual reports for 2022-23. They were part of a list of 40 agencies that were not included in the release on Wednesday.

Economist Saul Eslake said wages were the biggest cost for government agencies, and this week the federal Parliamentary Budget Office released its national fiscal outlook that highlighted concerns for Victoria’s finances at a broader budget level.

“They’re not in a disastrous condition, but they’re in a less sound condition than any other jurisdiction except the Northern Territory,” he said.

“Victoria’s found itself in a position where it had to do things that I don’t think any other state has done, which is to put taxes up.”

Eslake said the government couldn’t solve its financial issues entirely by bringing in new revenue, but cutting spending in key state government areas such as schools, health and housing was difficult politically.

He said Victoria’s debt profile had left it more exposed than other states to interest rate rises, and that there were now concerns of another Reserve Bank hike on Melbourne Cup Day.

A government spokesman said Victoria’s economy was strong, the state’s plan to repay its debts was on track, and employment was at record levels.

“We’ll continue to invest in the future of Victorians, creating the homes, schools, hospitals and transport options that they deserve,” he said.

“We are the only state or territory with a COVID Debt Repayment Plan – paying back the emergency credit card while we continue to grow the economy and jobs.”

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