A $1 billion surplus is forecast. History says it may not happen
The Victorian Treasury has repeatedly produced budget day net results that proved more optimistic than the final results, casting fresh doubt on the weak $1 billion surplus forecast in this week’s state budget for next year.
Finance Minister Jaclyn Symes insisted that the budget documents and the assumptions underpinning them were conservative, although Tuesday’s figures gave confidence to a quick resolution of the budget. Middle East conflict and an end to hyperinflation.
Audited final results figures produced in annual financial reports (usually a year after budgets are distributed) show that the Treasury has made overly optimistic deficit forecasts in four of the last five years.
The latest available final budget figures for the 2024-25 financial year show the actual deficit is $435 million higher than forecast on budget day in May 2024.
The final audited deficit in the 2021-22 fiscal year was $2.2 billion worse than forecast on budget day.
Symes’s budget this week is pegged at what he said would be a $727 million surplus in the current financial year, for the first time since before the pandemic. The final figure will be confirmed in October.
The last time there was a better-than-expected outcome was at the height of COVID-19, when the government forecast a highly pessimistic deficit of $23.3 billion for 2020-21, but then took advantage of a surge in stamp duty revenue driven by a booming property market and higher-than-forecast GST distributions, narrowing the actual deficit to $14.6 billion.
Tuesday’s budget showed the government is confident of economic growth standing at 1.5 per cent in 2026-27; This is much more optimistic than the forecasts of major analysts. Westpac predicted growth would be around 0.7 per cent.
The budget also assumes that the war in the Middle East will not be extended and property prices will return to normal growth by the end of the year.
Symes stood by the Treasury forecasts, saying history showed the forecasts were “pretty good overall”.
“If not, we usually have better results than theirs because they use very conservative numbers, because they have to be that way,” he said Tuesday.
Symes denied the budget’s forecasts for property prices, which affect the amount of stamp duty flowing into state coffers, were overly optimistic. He said the main reason why the Treasury reduced the 2026-27 budget surplus from $1.9 billion was the forecast for reduced property revenue.
Credit rating agency S&P has warned that the government’s economic assumptions may be optimistic and assume post-war normalization in the Middle East will occur faster than the agency’s expectations.
“A longer-term disruption could undermine the government’s fiscal forecasts due to higher interest rates, lower consumption and higher unemployment,” said S&P analyst Rebecca Hrvatin.
Analysis published Monday by independent economic think tank e61 Institute found that the state government’s spending forecasts in successive budgets were overly optimistic.
It found total government spending is forecast to be 16.4 per cent of the Victorian economy, also known as gross state product, in 2025-26. In 2018-19, this rate was 14.5 percent. This was despite successive budgets predicting the figure would fall.
Asked if Victorians were confident the projected surpluses would actually occur, Premier Jacinta Allan said only that the government had been able to deliver cost of living relief because it had reduced net debt as a part of the economy and produced an operating surplus.
Opposition Leader Jess Wilson said Labour’s budget forecasts should be treated with caution.
“From business balance to employee costs, tax revenues and economic growth, Labour’s optimistic budget forecasts have always fallen short in reality,” he said. “With interest repayments exceeding $1 million an hour, Victoria urgently needs a new approach to managing accounts.
“Victoria’s finances will not be fixed overnight. As Victoria’s alternative premier, restoring proper financial management is my top priority.”
The renewed scrutiny on budget forecasts comes as the prime minister and treasurer face renewed questions on Wednesday over the renewal of the $1.14 billion lottery licence.
Opposition spokesman James Newbury said the deal, announced by operator Lottery Corporation on the day the state budget was due to be announced, was “made behind closed doors, without public tender, and involved a windfall cash payment”.
Online rival operator Lottery Office said that, to its knowledge, “no other operator [was] You are invited to participate or bid on the Victorian licence”.
“We believe regulations of this scale should be subject to a transparent, competitive process; there is no need for a single licensing model,” a company spokesperson said. “Competition produces better outcomes for consumers, and lottery players should have choice.”
Symes said the lottery windfall had no impact on surplus projections because it would be noticeable over the entire 40-year period.
$1.14 billion will be paid into the government’s coffers in the 2026-27 fiscal year. However, due to accounting requirements, it is not reflected collectively in the budget papers. Instead, a small portion of the money will be recognized in each budget document until the license expires, meaning the full $1.14 billion won’t be recognized until 2068.
Stock market analysts said that the license renewal fee was generally at the level they expected compared to previous agreements, but the 40-year period was a surprise.
Analysts from Jarden and Citi said they expected the license to be renewed for 20 years for about $400 million or $500 million, respectively, while Morgan Stanley analysts said the renewal fee was “consistent with our expectations (albeit ahead of our expected timeline).”
Victoria has previously signed 10-year agreements for lottery licences, but NSW and South Australia have 40-year agreements and Queensland has signed a 65-year agreement.
The Lottery Corporation said in a stock exchange announcement that it negotiated the deal through “private, bilateral negotiations” with Victoria.
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