Treasurer Tim Pallas calls for a ‘serious and sensible conversation’ about public borrowing as opposition accuses him of reneging on election promise

Victoria’s treasurer, Tim Pallas, believes the state’s economy is strong enough to handle debt to fund key infrastructure projects, including the Melbourne Metro rail tunnel project.

Pallas provoked opposition criticism after he said low interest rates and a strong Victorian economy meant it was prudent that the government consider the benefits of borrowing. Taking into account inflation and population growth, he said, the previous government’s spending growth limit of 2.5% was not sustainable and could not deliver the services Victorians needed.

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“If we can’t have this conversation now – with continued population pressures, with state debt trending down, with the rate of recurrent spending growth below that of revenue growth, and with the cost of borrowing at an all–time low – we never will,” Pallas said.

“We also need to begin a serious and sensible conversation about the role of public debt in meeting our infrastructure needs.”

Delivering the state’s budget in May, his first as treasurer, Pallas had said the budget was “about balance” and would deliver an estimated surplus of $1.2bn in 2015-16. Net debt was down and the state’s triple-A credit rating was secure, he also said.

On Wednesday Pallas said: “I will never advocate using debt to fund recurrent spending. But I will also never take sensible options off the table today, to build the necessary infrastructure for tomorrow.”

At a low of just 2.28% in February, the current commonwealth government’s 10–year borrowing of 2.65% was close to the cheapest it has ever been, he said, and Victoria was able to borrow at rates of under 3%, the lowest rate in history.

On Thursday the state’s Liberal shadow treasurer, Michael O’Brien, accused Pallas of reneging on an election promise. “Tim Pallas promised Victorians that he wouldn’t increase debt,” O’Brien told ABC radio.

“What Mr Pallas is saying today is that he’s a weak treasurer, they’re a weak government who can’t manage their projects properly.”

Since the government under Labor premier, Daniel Andrews, scrapped the former Coalition government’s East West Link toll road project, it has been pushing its alternative Melbourne Metro public transport project. But with an estimated cost of between $9bn and $11bn, the project would require significant funding from private investors and the federal government.

Federal government money previously allocated towards the toll road could not be reallocated to public transport projects, the prime minister, Tony Abbott, has said. It meant the state government must come up with alternatives to fund the Melbourne Metro, which will travel under Swanston Street in the CBD and the Yarra river.