Victoria’s budget deficit blows out to $500m after disaster floods

A budget update has delivered bad news for families battling with the rising cost of living and revealed another budget deficit blowout.

Flood recovery efforts and a sponsorship deal with the Australian Diamonds have added $500m to Victoria’s budget deficit for the financial year and inflation is now tipped to peak at a whopping 8 per cent.

The Department of Treasury and Finance on Wednesday released its budget update detailing a comprehensive picture of the state’s finances before election day.

It comes just 10 days since the department’s last scheduled update, which showed a $1.8bn blowout to the 2022-23 deficit compared to what was predicted when the budget was handed down in May.

Speaking last week, Treasurer Tim Pallas warned there would be further pain as the cost of support and recovery efforts for devastating floods across the state were accounted for.

Treasurer Tim Pallas warned Victorians there would be further pain. Picture: David Caird

This was confirmed in the pre-election document, which details $500m in additional spending for these programs.

It also outlinefunding for a new sponsorship deal with Netball Australia, which was announced by Premier Daniel Andrews after the Gina Rinehart’s Hancock Prospecting withdrew its agreement with the Diamonds.

The state government will spend $15 million over five years on the deal and $5.4m has already been committed for 2022-23.

The additional costs means the operating deficit forecast for this financial year is now $10.2bn.

A return to an operating surplus is still expected in four years time and is tipped to be $0.9bn, above initial projections.

In bad news for families battling with rising cost of living, the update also revises how high inflation will get in Victoria.

Inflation is now expected to peak at 8 per cent in December, up from 7.75 per cent flagged just a week ago.

Daniel Andrews’ find his government task with tackling sky-high debt. Picture: David Crosling

The state is also expected to pay more on its interest repayments.

By 2025-26, Victoria will pay $7.438bn a year in interest alone, an increase of about $100,000 from the previous forecast.

Shadow Treasurer David Davis said this year’s operating deficit had increased by 30 per cent since the budget was handed down.

“It shows the incompetence of the government, they have completely failed to control their finances,” he said.

“The document also confirms by 2025-26 Victoria’s net debt will be $165.9bn.

“That is bigger than New South Wales, Tasmania and Queensland combined (for that year).

“That is a huge increase in debt and it is debt that impacts on the ability of the state to deliver reliable services and provide the infrastructure we need.

“Only the Liberals and the Nationals have a long-term economic plan to deal with the debt.”

Mr Pallas said the update, which included details of record-low unemployment levels at 3.25 per cent, confirmed his government’s economic recovery plan was working.

“Only Labor is doing what matters – creating thousands of jobs and supporting Victorian businesses,” he said.

“While Matthew Guy’s Liberals want to try to cut and close their way out of the pandemic, we’re proud to be investing in the projects and the people that will grow our economy and ensure our recovery.”