‘Downside risks’: warning as state debt edges to $200b

Struggling with living costs due to reduced government debt has stunned the business sector and raised credit rating agency eyebrows.

Victorian Finance Minister Jaclyn Symes, who announced her second budget on Tuesday ahead of the November state election, narrowly avoided announcing a $200 billion net debt projection.

Net debt is expected to reach $175.6 billion by the end of the next fiscal year and $199.3 billion by mid-2030.

By that point, annual interest repayments are expected to rise to $11.8 billion, or more than $32 million per day.

Victoria’s 2026/27 operating surplus falls from $1.9 billion to $1 billion.

There were no further major cost-of-living relief measures to be announced after Prime Minister Jacinta Allan spent billions on pre-budget day, including on free and half-price public transport and discounted vehicle registration.

Ms Symes described it as a tight and responsible Labor budget to make life “easier, safer and more affordable for every Victorian”.

“This budget confirms Victoria’s first operating surplus in seven years, the only surplus on the east coast,” the treasurer told parliament.

Treasury expects Victoria to post a total operating surplus of $6.8 billion over the next four years, but forecasts a cash deficit of more than $30 billion over that period.

While Victoria’s fiscal performance has “gradually improved”, S&P Global Ratings analyst Rebecca Hrvatin said fiscal cash deficits remained structurally large.

The credit rating agency believes additional expenses, including election campaign commitments and upcoming wage agreements, may not be fully reflected in the budget.

“We believe Victoria’s economic assumptions carry downside risks,” Ms Hrvatin said.

“For example, Victoria’s oil and gas price forecasts are lower than ours and they assume post-war normalization in the Middle East will occur more quickly.

“A longer outage could weaken the government’s fiscal forecasts due to higher interest rates, lower consumption and higher unemployment.”

Victorian Chamber of Commerce and Industry chief executive Sally Perde said the size of debt and weak growth were likely to undermine investor confidence.

“It raises more questions than answers,” he said.

Opposition Leader Jess Wilson said Victorians needed to understand the real-life consequences of rising debt.

“Next year Victorians will be paying an interest bill that could cover the cost of police, ampos and nurseries, leaving spare money left over,” he told reporters.

The coalition has pledged to cut five taxes and reduce debt if it comes to power for the first time since 2014.

But Ms Wilson has yet to say where she will find the money, beyond promising to cut funding as part of the province’s agreement with Aboriginal people.

There were no new taxes in the budget.

However, a 40-year extension of Victoria’s lottery license will deliver a windfall of $1.1 billion, offsetting falling poker machine revenue following the introduction of compulsory card play.

Ms Symes said revenue from stamp duty was expected to fall by around $900 million in the next financial year due to reduced property sales resulting from higher interest rates.

Despite the Allan government’s pledge to cut more than 1,000 civil service jobs, the treasury predicts employee costs will rise to $45.5bn by 2029/30.

Extra money for the increased pay offer for public school teachers, estimated to be a 28 per cent increase over four years, is expected to come from emergency funding.

VICTORIAN BUDGET Snapshot 2026/27:

* Net operating surplus: $1 billion in 2026/27, $2 billion in 2029/30

* Net cash deficit: $7.7 billion in 2026/27, $8.1 billion in 2029/30

* Employee expenses: $41.1 billion in 2026/27, $45.5 billion in 2029/30

* Infrastructure spending: $19.4 billion in 2026/27, $15.3 billion in 2029/30

* Net debt: $175.6 billion in 2026/27, $199.3 billion in 2029/30

* Interest repayments: $8.9 billion in 2026/27, $11.8 billion in 2029/30

* Unemployment: 4.75 percent in both 2026/27 and 2029/30

* Economic growth: 1.5 percent in 2026/27, 2.5 percent in 2029/30

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