Victoria to post rare surplus but it’s $1 billion less than expected

Victoria’s budget is on track to post a dramatically smaller surplus than previously expected as the state government struggles to balance cost-of-living relief with rising infrastructure-fuelled debt.

Treasurer Jaclyn Symes will announce a projected $600 million operating surplus for 2025-26 in Tuesday’s budget which, if delivered, would be the first time Victoria’s day-to-day government sector running costs have been in the black since before 2020’s COVID-19 lockdowns. The expected surplus is, however, $1 billion smaller than that forecast six months ago.

Symes will also outline projections for an average $1.9 billion operating surplus in the following years, peaking at a forecast $2.4 billion surplus in 2027-28.

The positive annual balance sheet will still be overshadowed by the long-term costs Victoria continues to pay for massive infrastructure projects. When this expenditure is taken into account, the cash position of the budget remains in deficit.

The size of the state’s debt will continue to grow to an expected $187 billion in 2028, but Symes said its share of the overall economy will decline in future budgets. “By delivering a responsible budget, we can invest more in what matters most to Victorian families,” she said.

Premier Jacinta Allan says Victorians need help dealing with the cost of living.Credit: Luis Enrique Ascui

Symes described the surplus as “just the beginning”.

“From here, net debt will continue to fall as a share of the economy, and we will see continued surpluses in the years to come – allowing us to continue to provide services and infrastructure that Victorians need.”

Premier Jacinta Allan said Symes’ first budget would focus on cost of living relief for families, including a $318 million plan to provide free public transport for all Victorian children over the next four years and a $123 million extension of payments to parents to assist with school costs. In the lead up to Tuesday’s budget the government has also announced $727 million to add 1000 adult prison beds, and 58 youth justice beds, into the state’s correctional system, and a billion dollar road maintenance boost.

“We are delivering the first budget surplus since the pandemic,” Allan said.

“Victorians want a responsible budget that sets up our state for the future, and they want real help to ease the cost of living right now.”

A December budget update had forecast the surplus to reach $1.6 billion by 2025-26.

The December update also forecast that Victoria would have to pay $12.5 billion for its building projects this year, raising the state’s total debt to $168.5 billion in 2026 and $187 billion in 2028.

In February credit ratings agency Standard & Poors warned that Victoria and other states were at risk of another credit downgrade if they failed to rein in their debt. Victoria already has the nation’s lowest credit rating, with S&P downgrading Victoria two notches to AA, from AAA, in December 2020.

The enormous North East Link road project, once expected to cost around $10 billion, will now cost $26 billion.Credit: Jason South

Despite the debt pressure, the government is poised to award its largest contract yet for the Suburban Rail Loop with a $9 billion deal about to be inked with a John Holland-led consortium to build and operate part of the project.

The Victorian opposition on Sunday released its analysis of a decade of Labor’s budgets, claiming the state government had spent an average of $14 billion a year more than it had spelt out in its annual budgets.

Opposition Leader Brad Battin accused Labor of deliberately misleading Victorians by delivering “fake numbers” in its budgets compared to the actual spending it then undertook each year.

“When we talk about the budget that is coming up, where we know that their figures factually incorrect, we know they are adding in nearly $2 billion in extra taxes on every Victorian,” Battin said. “For over a decade we’ve seen debt increase and the deception from this government to lie when it comes to the budget figures has been highlighted in each and every outcome at the end of the year.”

Returning to an operating surplus would allow the Allan government to achieve the third step of the fiscal strategy that it set to chart an economic course out of the pandemic.

Liberal senator Sarah Henderson on Sunday called for Prime Minister Anthony Albanese to come clean about his knowledge of the Victorian government’s secret cuts to education funding that were buried in last year’s state budget papers.

The Age this month revealed that the Victorian government ripped $2.4 billion from state schools by delaying by three years its commitment to provide the funding required to under the Gonski education reforms.

“If Labor is serious about equity in education, it must be honest about the deals it’s cutting and the consequences of state Labor governments walking away from their Gonski obligations,” Henderson said.

“This shameful decision was signed off by Premier Allan after warnings from her own education minister that it would prolong inequality and embed Victoria as the lowest funder of public schools in the country.”

“Worse still, the federal government has reduced its own contribution to Victorian public schools because of this broken commitment – a move quietly confirmed in their bilateral dealings.”

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