Victoria is financially “into it”, with the state government constantly struggling to cut spending to meet its budget expectations, driven by health costs and interest payments.
Despite the warning of the role facing Treasurer Jaclyn Symes, the Allan government has revealed more than $2 billion in spending measures ahead of Tuesday’s budget and is expected to forecast a slight increase in its operating surplus for the 2025-26 financial year.
A new analysis from the independent e61 Institute, released on Monday, has analyzed multiple Victorian budgets and found repeated spending growth hampered Victorian elections, with total government spending forecast to be 16.4 per cent of the Victorian economy, also known as general government product (GSP), in 2025-26. It was 14.5 percent in 2018-19.
This was despite successive budget forecasts that the figure would drop. Although it has improved since the pandemic, spending is still above COVID-era levels as a share of the economy.
e61 Institute chief executive Michael Brennan, also a former chairman of the Productivity Commission, said the situation had left Symes with little room for manoeuvre.
“Victoria is not broken, but it is becoming more integrated,” he said.
“Treasurer Symes has the unenviable task of maintaining a credible, rehabilitated financial direction.
past financial ruin, and dealing with the juggernaut of health and hospitals, all the time winners
cope with another cost-of-living shock.
“Successive Victorian governments have promised fiscal restraint without implementing it
the situation now calls for a real change from the old financial practices.
“This is not the time for the kind of pre-election spending that we normally expect six months out from an election.”
Two government sources, who spoke on condition of anonymity to clarify confidential budget information, said the government believes the government will post an operating surplus for 2025-26 slightly higher than its forecast of $700 million.
Operating figures do not take into account capital expenditure but are an important part of Symes’ financial strategy and are closely watched by rating agencies.
Victoria is expected to spend about $10 billion more than it earns this year, once infrastructure projects that can be financed with debt are allowed.
Budget announcements in the past month include a promise of 750 million dollars to provide a 20% cashback on car registration and $432 million for extend free public transport until the end of May and introducing half-price fares for the remainder of 2026.
Another $100 million has been earmarked for improving bus routes across Melbourne and Victoria, $673 million towards 25 new trains for X’Trapolis 2.0 and $77.5 million for additional services.
In the last week, another round of announcements focused on health and education.
More than $760 million has been pledged for new or expanded schools, and another $294 million for improving existing facilities.
Victoria will spend $50.1 million to provide an additional 4000 planned surgeries for children and $101 million to improve Triple Zero Victoria’s mobile infrastructure.
Under the hospital announcement line, $95 million will be used to open an upgraded Werribee Mercy Hospital Emergency Department and $44.8 million for an upgraded Angliss Hospital.
Another $87.2 million will go to Cranbourne, Pakenham and Craigieburn hospitals to open or expand services.
The e61 analysis found that health and interest costs were the main reasons for government spending to rise as a share of the economy, accounting for two-thirds of the growth in this figure.
As part of the GSP, health spending has risen from 4.25 percent to 5 percent while interest payments have doubled from 0.6 percent to 1.2 percent as debt has increased and had to be repaid at higher rates.
Interest costs were the fastest growing and are forecast to increase further from $7.7 billion this financial year to $10.5 billion by 2029.
Health costs have grown slowly in percentage terms, but they are the largest area of government spending, so the 0.75 percent increase still represents a significant addition to the budget.
Both areas are likely to remain a challenge for Victoria, e61 found, as the nation’s aging population continues to put pressure on health while old borrowing decisions are locked into high interest payments.
Opposition Leader Jess Wilson on Sunday said her biggest concern ahead of the budget was that the debt would continue to rise.
“This is a government that makes big promises in an election year but fails to deliver often,” he said.
“They are adding to the debt and that means higher interest payments, which makes it harder to provide the services that Victorians need.
“By not managing the budget … they are making life difficult for Victorians.”
A spokesperson for the Allan government said the budget focused on the real and immediate cost of living.
“It’s also a budget that invests in things that matter to Victorians such as quality education, quality health care and a safe Victoria,” they said.
“We can do this because we’ve worked hard to deliver a budget surplus, and we’re reducing debt as part of the economy.”
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