Victorian treasurer Tim Pallas predicts Victoria will record $650m surplus by 2025-26

Despite Treasurer Tim Pallas’ optimistic outlook for a future surplus, credit rating agencies remain concerned about Victoria’s ongoing cash deficits and net debt.

The state government will continue to spend more money than it brings in until at least 2025, but promises to be back in surplus by then.

Before delivering his eighth budget on Tuesday treasurer Tim Pallas has revealed bold predictions Victoria will record a $650m surplus by 2025-26.

But he remained tight-lipped on the state’s net debt position amid predictions it will climb higher than the projected record $162bn by then.

Mr Pallas said the budget would outline initiatives to stabilise debt. He said strong jobs and wages growth had propelled Victoria’s economic recovery.

The state’s unemployment rate of 4 per cent is a record low, and jobs growth is predicted every year.

The economy is tipped to be 8.7 per cent bigger at the end of this financial year than it was in 2018-19.

Victorian Treasurer Tim Pallas will deliver his eighth budget. Picture: Ian Currie

Mr Pallas said the $17.6bn operating deficit of 2021-22 was $1.9bn lower than forecast in December’s budget update, and would drop to $7.9bn next year. Government expenditure would fall by 9.7 per cent in 2022-23.

“Victoria’s strong recovery from the effects of the pandemic is well and truly under way,” he said.

“The economy’s performed better than we thought, and it’s in no small part due to the ­efforts of Victorian business and the workforce, who seem to have bounced back.

“We’ve consolidated, we’re recovering strongly, and the benefits are being shared right across the state. So I think everybody can have a high degree of confidence that we’re through the worst of it.”

Despite the Treasurer’s ­optimism, credit rating agencies remain concerned.

Anthony Walker, an analyst at S&P Global Ratings, warned of further pressure on Victoria’s rating.

S&P downgraded Victoria’s AAA rating in December 2020, and it continues to have the lowest rating of any state.

“Our AA rating on Victoria is based on our expectations that the state’s very large cash deficits will narrow next year,” Mr Walker said.

“This underpins the stable outlook on the rating.

“If deficits don’t narrow as we forecast, and debt rises ­beyond our expectations, it would place downward pressure on the rating.”

A massive funding package to fix the ailing health system will be the centrepiece of the budget. Picture: David Crosling

Daniel Andrews promised a massive funding package to fix the ailing health system as the centrepiece of the budget.

Investment in services, jobs, schools, TAFE, road and rail would also feature, he said.

“All of those things are incredibly important, in terms of underpinning demand in the Victorian economy, underpinning confidence in the Victorian economy, so that we can continue to create jobs and provide people with support in many different areas that they are fundamentally entitled to.”

Opposition leader Matthew Guy blamed poor financial management on a raft of major projects for Victoria’s economic position.

“We have a health system in crisis,” he said.

“The money the government has wasted in their eight years in office from infrastructure project blowouts could have paid for so much to repair our health service.

“We could have paid for our mental health system, from the blowouts in the Westgate Tunnel alone.”