Victoria is financially “boxed in”, with the state government consistently struggling to bring down spending to meet its own budget expectations, driven by health expenses and interest payments.
Despite the warning of the task facing Treasurer Jaclyn Symes, the Allan government has unveiled more than $2 billion in spending measures before Tuesday’s budget and is tipped to project a slight increase to its operating surplus for the 2025-26 financial year.
New analysis from independent think tank the e61 Institute, released on Monday, has analysed multiple Victorian budgets and found repeated spending growth had constrained Victoria’s options, with total government spending forecast to be 16.4 per cent of the Victorian economy, also known as gross state product (GSP), in 2025-26. It was 14.5 per cent in 2018-19.
This was despite successive budgets forecasting the figure would come down. Although it has improved since the pandemic, expenditure is still above COVID-era levels as a share of the economy.
Chief executive of e61 Institute Michael Brennan, also a former chair of the Productivity Commission, said this trend had left Symes with little room to manoeuvre.
“Victoria is not broke, but it is increasingly boxed in,” he said.
“Treasurer Symes has the unenviable task of maintaining a credible fiscal trajectory, repairing
past fiscal damage, and dealing with the health and hospitals juggernaut, all while Victorians
face another cost-of-living shock.
“Successive Victorian governments have promised fiscal restraint without delivering it. The
situation now necessitates a real shift from past fiscal habits.
“This isn’t the moment for the kind of pre-election spend-up we’d normally expect six months out from a poll.”
Two government sources, speaking anonymously to detail confidential budget information, said the government believed the state would deliver a 2025-26 operating surplus slightly higher than its forecast of $700 million.
The operating figure does not consider capital expenditure but is a key part of Symes’ fiscal strategy and watched closely by ratings agencies.
Victoria is expected to spend nearly $10 billion more than the revenue it generates this year, once infrastructure projects that can be financed by debt are allowed for.
Budget announcements over the past month include a $750 million pledge to provide a 20 per cent refund on car registrations and $432 million to extend free public transport until the end of May and introduce half-price fares for the rest of 2026.
Another $100 million has been put towards upgrading bus routes across Melbourne and regional Victoria, $673 million towards 25 new X’Trapolis 2.0 trains and $77.5 million for extra services.
Over the past week, another round of announcements was focused on health and education.
More than $760 million has been pledged for new or expanded schools, with another $294 million for upgrades of existing facilities.
Victoria will spend $50.1 million to deliver 4000 additional planned surgeries for children and $101 million to upgrade Triple Zero Victoria’s telephone infrastructure.
Under a suite of hospital announcements, $95 million will go towards opening the upgraded Werribee Mercy Hospital Emergency Department and $44.8 million to the redeveloped Angliss Hospital.
Another $87.2 million will go towards the Cranbourne, Pakenham and Craigieburn hospitals to open or expand services.
The analysis by e61 found that health and interest expenses were the biggest factors behind government spending rising as a share of the economy, accounting for two thirds of the growth in this figure.
As a share of GSP, health spending has risen from 4.25 per cent to 5 per cent while interest repayments have doubled from 0.6 per cent to 1.2 per cent as debt has grown and had to be refinanced at higher rates.
Interest expenses were the fastest-growing category and forecast to increase further from $7.7 billion this financial year to $10.5 billion by 2029.
Health costs have grown slower in percentage terms, but it is the government’s biggest area of expenditure, so a 0.75 per cent increase still represents a massive addition to the budget.
Both areas are likely to remain challenges for Victoria, e61 found, as the nation’s ageing population continues to put pressure on health while past borrowing decisions have locked in high-interest payments.
Opposition Leader Jess Wilson on Sunday said her biggest concern ahead of the budget was that debt would continue to rise.
“This is a government that makes big promises in an election year but fails to live up time and time again,” she said.
“They are pushing up the debt and that means higher interest repayments, which makes it harder to deliver the services that Victorians need.
“By not managing the budget … they are making Victorians’ lives harder.”
An Allan government spokesperson said the budget was focused on the real and immediate cost of living.
“It’s also a budget that invests in the things that matter to Victorians like a great education, better healthcare and a safer Victoria,” they said.
“We can do this because we’ve worked hard to deliver a budget surplus, and we’re reducing debt as a share of the economy.”
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Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: www.smh.com.au
