Victorian budget 2026: state records first post-pandemic surplus but financial health uncertain as debt nears $200bn | Victorian politics

Victoria has recorded a surplus for the first time since the pandemic, but the state’s financial recovery remains uncertain and debt is forecast to be close to $200 billion in coming years due to global uncertainty.

The 2026-27 Victorian budget released on Tuesday shows the state records a $727 million operating surplus In 2025-26, a slight improvement from December’s $710 million pre-budget update and $611 million budget update last may forecast.

Finance Minister Jaclyn Symes said it was Victoria’s first surplus in seven years and the only surplus recorded by any state government “on the east coast” in 2025-26.

“We join Western Australia and South Australia as the only jurisdictions with a surplus. But of course, South Australia is smaller than ours and Western Australia can rely on what other states can only dream of in terms of royalties and a sweet GST deal,” he told reporters on Tuesday.

“Given our structural disadvantage compared to other states in terms of revenue, it is impressive that we are generating a surplus overall in that regard.”

The budget also projects a surplus of $1.05 billion in 2026-27, down $895 million from the December estimate, followed by a surplus of $1.86 billion in 2027-28, $1.94 billion in 2028-29 and $1.97 billion in 29-30.

Symes said the consecutive surpluses were due to the state’s strong economic growth and the government’s “disciplined decisions” amid a “tight fiscal environment”.

Like other states, Victoria’s operating surplus does not include infrastructure and other capital expenditure.

Taking this into account, Victoria is forecast to have a $7.7 billion cash deficit in 2026-27 – $400 million worse than forecast in the December budget update – falling to $7.12 billion in 2027-28, widening to $7.58 billion in 20238-29 and $8.07 billion in 2029-30.

Debt is also forecast to rise from $165.3 billion in June 2026 to $199.3 billion in 2029-30, but will stabilize at 24.4 percent of the economy. Gross State Product (GSP). By then, interest payments on government debt are expected to total $11.82 billion, or $32 million a day.

Another major expense for the government is the public sector wage bill, which will account for $41.13 billion in 2026-27, or 35% of total revenue. It comes after the government signed off in December on a plan to cut 1,000 public sector jobs, including 300 managers, and merge several organisations.

The government will generate $41.52 billion in tax revenue this year, rising to $43.18 billion in 2026-27 and then rising by an average of 5.1%, according to forward-looking estimates.

But its revenue from stamp duty is expected to take a hit in the next financial year due to “a decline in property market activity due to higher interest rates” before rebounding in 2027-28. The budget also anticipates that poker machine revenue will decrease due to the introduction of compulsory card play, but this will be offset by an increase in lottery revenue.

The budget is based on several key assumptions, including that the state’s economy will continue to grow (1.5% in 2026-27, 2% in 2027-28 and then 2.5% in the final two years of the forward projections) and that inflation will peak at 3.5% this fiscal year before falling to 2.5% in the next fiscal and falling to 2.5% in 2029-30.

It is also assumed that the Reserve Bank of Australia will increase the cash rate to 4.35% by mid-2026, after which it will remain at this level throughout 2026-27 and gradually decrease to 3.5% towards the end of 2028.

Symes defended the assumptions, telling reporters they were no “rosier than anyone else’s” and that the treasury was “fairly conservative”.

The budget warns Victoria’s economic outlook and forecasts are subject to “high” uncertainty amid a “highly uncertain geopolitical backdrop”.

The budget, called “Easier, Safer, More Affordable,” provides $13.8 billion in funding for new initiatives since the December budget update; This includes $750 million in 20% refunds on vehicle registrations and $432 million in extensions. free public transportation Half-price tickets through the end of May and then for the rest of 2026.