Victorian government departments may be merged to rein in spending

The Allan government is investigating a potential merger of major departments and agencies as part of its plan to slash thousands of jobs from the public service ahead of an expected “catastrophic budget”.

Government departments and agencies could be merged in a bid to save billions of dollars in operating expenses as part of next month’s state budget.

The Sunday Herald Sun can reveal the Allan government is examining the potential merger of major entities as part of its plan to slash thousands of jobs from the public service.

Senior government sources said assessments had been undertaken about the viability of mergers that would rein in spending ahead of an expected “catastrophic budget”.

They included looking at the potential merger of public housing operator Homes Victoria — which has for years been on the brink of financial collapse with Development Victoria.

The merger of key departments has also been canvassed as part of budget planning.

Official forecasts show Victoria’s debt is on track to hit $188bn by 2028, but blowouts on major projects and the government’s wages bill are expected to significantly affect that figure.

The Allan government is considering a potential merger of key departments. Picture: David Crosling

The government is frantically working to avoid a debt blowout, sources warned could see net debt exceed $200bn for the first time in the state’s history.

Sources familiar with ongoing budget planning said funding could also be slashed to critical local services including specialist legal services.

The government’s latest financial update showed expenses had increased by $3.36bn more than anticipated while inflaming fears about the state’s debt trajectory.

Credit ratings agencies have warned Victoria would face an almost certain downgrade if it couldn’t rein in spending and put a lid on major infrastructure spending.

Such a move would lead to increased borrowing costs and make it harder for the government to start lowering the state’s debt profile.

Treasurer Jaclyn Symes has refused to rule out introducing new taxes as part of her first budget.

Treasurer Jaclyn Symes has refused to rule out the introduction of new taxes. Picture: Andrew Henshaw

But she has also put departments and agencies on notice about economic waste, urging them not to spend outside their means to ensure they are “not taking taxpayer money for granted”.

A review of the public service currently being undertaken by former Department of Premier and Cabinet secretary under the Brumby and Baillieu governments, Helen Silver, is looking to axe up to 3000 jobs from the public service.

However public service sources said employees were bracing for job cuts of almost double that size.

The government’s wages bill has almost doubled from $18.8bn when it came to office, with expenses this financial year expected to hit $37.52bn.

In 2023, the government unveiled plans to axe 5000 workers in the biggest cull of the public service in over a decade, but the number of employees actually grew over the subsequent 12 months.

Blowouts on major projects are expected to significantly impact the budget figure. Picture: Mark Stewart

In 2020, former premier Daniel Andrews separated the Department of Health and Human Services into two new departments to allow for a dedicated focus on the health system amid the Covid pandemic.

The new Department of Health and the Department of Families, Fairness and Housing commenced in early 2021, while a new Department of Government Services was introduced in 2023 to take over a number of portfolios from the Departments of Premier and Cabinet and Treasury and Finance.

Major changes also impacted the former Department of Transport and the Department of Environment, Land, Water and Planning.

Government sources said there remained scope to remerge some departments and government agencies.

Originally published as Victorian government departments may be merged to rein in spending