A $1 billion surplus is forecast for Victoria. History says don’t hold your breath

Victoria’s Treasury has repeatedly produced budget-day bottom lines that proved more optimistic than the final results, casting fresh doubt over the slim $1 billion surplus forecast for the year ahead in this week’s state budget.

Treasurer Jaclyn Symes has insisted that the budget papers and the assumptions underpinning them are conservative, despite Tuesday’s figures banking on a swift resolution of the Middle East conflict and an end to high inflation.

Final audited bottom-line figures produced in annual financial reports – usually more than a year after budgets are handed down – show that Treasury provided overly optimistic deficit forecasts in four of the past five years.

The most recent available final budget figures, from the 2024-25 financial year, show the actual deficit was $435 million higher than what was forecast on budget day in May 2024.

In the 2021-22 financial year, the final audited deficit was $2.2 billion worse than what was forecast on budget day.

Symes’ budget this week locked in what she said would be a $727 million surplus in the current financial year – the first since before the pandemic. The final figure will be confirmed in October.

The last time an outcome was better than expected was during the height of COVID-19, when the government projected a highly pessimistic deficit of $23.3 billion for the 2020-21 year, but subsequently benefited from a surge in stamp duty revenue driven by a booming property market and higher-than-forecast GST distributions, which narrowed the actual deficit to $14.6 billion.

Tuesday’s budget showed the government is banking on economic growth sitting at 1.5 per cent in 2026-27 – which is significantly more optimistic than predictions from major analysts. Westpac has predicted growth will be about 0.7 per cent.

The budget also assumes the war in the Middle East will not be prolonged and that property prices will return to usual growth by the end of the year.

Symes stood by the Treasury forecasts, saying history showed its predictions had been “generally pretty good”.

“If not, we usually have better outcomes than what they have because they use quite conservative numbers, because they have to be,” she said on Tuesday.

Symes denied the budget’s predictions for property prices – which affect the amount of stamp duty flowing into the state’s coffers – were overly optimistic. She said the reduced property revenue forecast had been a major reason Treasury had downgraded the 2026-27 surplus from $1.9 billion.

Credit ratings agency S&P warned that the government’s economic assumptions could be optimistic and assumed a faster normalisation following the war in the Middle East than the agency’s expectations.

“A more prolonged disruption could undermine the government’s fiscal forecasts through higher interest rates, lower consumption, and higher unemployment,” S&P analyst Rebecca Hrvatin said.

Analysis from independent economics think tank the e61 Institute, released on Monday, found that the state government’s spending forecasts in successive budgets were overly optimistic.

It found total government spending was forecast to be 16.4 per cent of the Victorian economy, also known as gross state product, in 2025-26. It was 14.5 per cent in 2018-19. This was despite successive budgets forecasting the figure would come down.

Asked whether Victorians should be confident that predicted surpluses would play out in reality, Premier Jacinta Allan would say only that the government was able to provide cost-of-living relief because it had reduced net debt as a proportion of the economy and produced operating surpluses.

Opposition Leader Jess Wilson said Labor’s budget estimates should be taken with a pound of salt.

“From operating balance to employee expenses, tax revenue and economic growth – Labor’s optimistic budget estimates have always fallen short in reality,” she said. “With interest repayments to exceed $1 million an hour – Victoria urgently needs a new approach to managing the books.

“Victoria’s fiscal position won’t be fixed overnight. As Victoria’s alternative premier, restoring proper financial management is my top priority.”

The renewed scrutiny on the budget forecasts came as the premier and treasurer faced renewed questions on Wednesday about a $1.14 billion lottery licence renewal.

Opposition spokesman James Newbury said the deal, announced by operator the Lottery Corporation on the day of the state budget, was done “behind closed doors, without public tendering, and includes a windfall cash payment”.

Online rival operator the Lottery Office said that to its knowledge, “no other operator [was] invited to engage in or bid for the Victorian licence”.

“We believe arrangements of this scale should be subject to a transparent, competitive process – a single licence model is not necessary,” a company spokesperson said. “Competition drives better outcomes for consumers, and lottery players should have access to choice.”

Symes said the lottery windfall had no impact on the surplus projections because it would be recognised over the life of the entire 40-year period.

The $1.14 billion will be paid into government coffers in the 2026-27 financial year. But due to accounting requirements, it is not reflected in the budget papers as a lump sum. Instead, a small share of the money will be recognised in every budget paper until the licence expires, meaning the full $1.14 billion won’t be accounted for until 2068.

Stock market analysts said the licence renewal fee was broadly what they expected based on previous deals, but its 40-year term was a surprise.

Analysts from Jarden and Citi said they had expected the licence 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 time-line)”.

Victoria had previously signed 10-year agreements for its lottery licence, but NSW and South Australia have 40-year agreements in place and Queensland has signed a 65-year agreement.

The Lottery Corporation said in a stock exchange announcement that it negotiated the deal through “exclusive, bilateral negotiations” with Victoria.

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