Harsh reality facing Allan government
Victoria is “strapped” financially; Due to healthcare costs and interest payments, the state government is constantly trying to cut spending to meet its own budget expectations.
Despite warning about the task facing Chancellor of the Exchequer Jaclyn Symes, the Allan government has announced more than $2 billion in spending measures ahead of Tuesday’s budget and is expected to forecast a slight increase in the operating surplus for the 2025-26 financial year.
New analysis from independent think tank e61 Institute, published on Monday, analyzed multiple Victorian budgets and found repeated spending increases were restricting Victoria’s options; The total government spending forecast would be 16.4 per cent of the Victorian economy, also known as gross state product (GSP), in 2025-26. In 2018-19, this rate was 14.5 percent.
This was despite successive budgets predicting the figure would fall. Although it has improved since the pandemic, spending as a share of the economy is still above Covid-19 era levels.
Michael Brennan, chief executive of the e61 Institute and former chairman of the Productivity Commission, said this trend left Symes with little room for manoeuvre.
“Victoria isn’t broke, but she’s becoming more and more stuck,” he said.
“Treasurer Symes has the unenviable task of repairing the finances, maintaining a reliable fiscal course.
Dealing with past financial damage and the overwhelming power of healthcare and hospitals while being Victorians
facing another cost-of-living shock.
“Successive Victorian governments have promised fiscal restraint but failed to deliver.
The situation now requires a real change from past financial habits.
“This is not the time for the kind of pre-election spending we would normally expect six months after the end of a poll.”
Two government sources, who spoke anonymously to detail confidential budget information, said the government believes the province will run an operating surplus slightly above its $700 million forecast in 2025-26.
The operational figure does not take into account capital expenditure but is a key part of Symes’ financial strategy and is closely watched by rating agencies.
When debt-financed infrastructure projects are allowed, Victoria is expected to spend around $10 billion more than it earns this year.
Last month’s budget announcements include a $750 million commitment to provide a 20 percent refund on vehicle registrations, extending free public transport until the end of May and introducing half-price tickets for the remainder of 2026.
$100 million has been spent on improving bus routes in Melbourne and regional Victoria, $673 million on 25 new X’Trapolis 2.0 trains and $77.5 million on extra services.
Last week, there was another round of announcements focusing on health and education.
More than $760 million has been pledged for new or expanded schools and $294 million to improve existing facilities.
Victoria will spend $50.1 million to carry out an additional 4,000 planned surgeries for children and $101 million to improve Triple Zero Victoria’s telephone infrastructure.
According to a series of hospital announcements, $95 million will go towards the opening of the upgraded Werribee Mercy Hospital Emergency Department, while $44.8 million will go towards the redeveloped Angliss Hospital.
Another $87.2 million will go to opening or expanding services at Cranbourne, Pakenham and Craigieburn hospitals.
Analysis by e61 found that healthcare and interest expenses were the biggest factors behind the increasing share of public spending in the economy, accounting for two-thirds of the growth in this figure.
While healthcare expenses as a share of GSP increased from 4.25 percent to 5 percent, interest repayments doubled from 0.6 percent to 1.2 percent as debt increased and had to be refinanced at higher rates.
Interest expenses were the fastest-growing category and are forecast to grow from $7.7 billion this fiscal year to $10.5 billion by 2029.
Healthcare costs have grown more slowly in percentage terms, but as this is the government’s largest area of spending, a 0.75 percent increase is still a big boost to the budget.
Both areas are likely to continue to pose challenges for Victoria, according to e61, as past borrowing decisions have locked in high interest payments while the country’s aging population continues to put pressure on health.
Opposition Leader Jess Wilson said ahead of the budget on Sunday that her biggest concern was that the debt would continue to rise.
“This is a government that makes big promises in an election year but fails to deliver every time,” he said.
“They increase debt and that means higher interest repayments, making it harder to deliver the services Victorians need.
“By not managing the budget… they are making life difficult for Victorians.”
An Allan government spokesman said the budget focused on the real and immediate cost of living.
“This is also a budget that invests in the things that matter to Victorians, like excellent education, better health services and a safer Victoria,” they said.
“We can do this because we have worked hard to maintain a budget surplus and reduce debt as a share of the economy.”
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