Be Alert not Alarmed!
What a year this has been!
So many individuals and businesses have sailed through the year. Sadly, many others have not.
The full impact of 2020 will not be known for years.
Impact on individuals, families and businesses, not to mention Municipal Councils.
Some practices will have changed forever, and perhaps like working from home for part of each week.
For Councils particularly those in regional and rural communities where so many businesses have struggled, and the producers of agriculture products cannot get labour to pick crops, the social and economic impact could be devastating.
For instance, for Councils rate capping has already had a good impact for residents and businesses within municipalities, but the impact on Council’s funds available for infrastructure maintenance and construction has been very tough.
But I fear there is a further economic tsunami heading Councils way!
The Victorian State budget handed down recently has State Debt projected to be $155bn in three years’ time.
Clearly understand, the State of Victoria quite simply does not earn sufficient revenue each year to substantially reduce that debt in the next 20 years, if ever. Victoria will never be able to be debt free.
That said, some debt, at a manageable level is fine. But one should always be conscious of the cost of carrying debt. While interest rates are historically low, over time as night follows day they will rise, and that will cost us all dearly.
My fear for municipalities is that the Government of Victoria, in spending most of this borrowed money on large infrastructure projects, mainly around the city of Melbourne, and will have little left to meet the present and future needs of municipalities.
You will again be asked to tighten your belts. When to be honest many of the smaller, rural and regional councils are already living off the smell of an oily rag.
Too much debt is like an anchor around the neck of a person or a State.
Please remember when my team were elected to office in 1992 Victoria had a debt of $33bn. We borrowed another billion to reduce the size of the public service which had grown inefficiently under the Cain Kirner years. When we left office in 1999 it had taken us 7 years to reduce that debt to $5bn.
It is now projected to grow to $155bn. That is 31 times bigger than Victoria’s debt in 1999.
State revenue projected for the financial year 2019/20 was $70bn. From that all recurrent expenditures had to be paid.
The point I am making is there is simply no capacity to reduce debt in the foreseeable future.
If as projected the population of Victoria reduces by up to 500,000 people over the next two years that will only compound the challenges for us all.
We at CT Management are doing some work now on the financial status of every Victorian Council. We will share this information with you in February next year.
Both elected Councillors and Administrators of Councils are going to have to fully understand the pit falls and opportunities that might exist over the next 5 years for their Council.
If you think 2020 was a challenging year, I fear the next five could be more profound, particularly as the GST payment to the Victoria is also going to reduce significantly.
So, I do not want to sound pessimistic. But in order to get through the next few years we will all need to be realistic. We must understand our condition as individuals, families, businesses and Councils.
As always, I am optimistic, but I am sure the next 5 years will be the most challenging Victoria has ever faced.
So, for now, have a good break, because from early next year we will all have to roll up our sleeves for the greatest challenge we have ever collectively faced.
But we will succeed.
Stay fit and healthy, mentally and physically, or use the next few months to do so, because none of us can discharge our duties as we would wish unless we are healthy, mentally and physically.
CT Management Group