{"id":657959,"date":"2026-05-08T15:22:13","date_gmt":"2026-05-08T15:22:13","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/657959\/"},"modified":"2026-05-08T15:22:13","modified_gmt":"2026-05-08T15:22:13","slug":"how-did-victoria-become-australias-most-indebted-state","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/657959\/","title":{"rendered":"How did Victoria become Australia\u2019s most indebted state?"},"content":{"rendered":"

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In Tim Pallas\u2019 first budget after Labor returned to power in 2014, his message was clear: with him at the helm of the state\u2019s coffers, Victoria would be a financially disciplined state.<\/p>\n

\u201cOur finances will stay strong. Our projects will proceed prudently, properly, progressively,\u201d he said in his 2015 budget day speech.<\/p>\n

\"TimTim Pallas delivering his first budget after Labor returned to power in 2014.Josh Robenstone <\/p>\n

Debt, Pallas declared, would fall below the levels inherited from the Coalition and stay there. At the time, net debt sat at $22.3 billion \u2013 about 6 per cent of gross state product (GSP) \u2013 and he promised it would shrink even further.<\/p>\n

The then treasurer pledged to guard the state\u2019s triple-A credit rating, avoid tax hikes and shield public sector jobs, all while maintaining a pro-business government. That inaugural budget culminated in a surplus of $2.9 billion, comfortably outstripping expectations.<\/p>\n

Fast-forward to 2026, and Victoria\u2019s finances are in starkly different shape<\/a>.<\/p>\n

Victoria\u2019s net debt \u2013 now the highest of any state \u2013 is forecast to reach $175.6 billion next financial year and soar to $199 billion by the end of the decade, accounting for about 25 per cent of GSP.<\/p>\n<\/p>\n

That\u2019s according to the budget delivered on Tuesday by Jaclyn Symes, Pallas\u2019 successor, which also forecasts that Victoria\u2019s annual interest bill will jump to $11.8 billio<\/a>n in 2030 \u2013 about half what the state will spend on education.<\/p>\n

Against the backdrop of November\u2019s state election, Opposition Leader Jess Wilson is framing the contest around the state\u2019s escalating debt pile and the fiscal burden on generations to come.<\/p>\n

Premier Jacinta Allan has fired back, accusing Wilson of planning \u201cruthless\u201d cuts that will inevitably hit frontline jobs and services. Despite that rhetoric, Allan\u2019s government has targeted $4 billion in savings after a review of the public service by respected bureaucrat Helen Silver.<\/p>\n

Economists have warned that changes to government spending will be necessary one way or another, as debt repayments gobble up a growing share of available funds.<\/p>\n

\"TreasurerTreasurer Jaclyn Symes on budget day. Joe Armao<\/p>\n

So how did Victoria get here? COVID-19 was a once-in-a-generation crisis that accelerated Victoria\u2019s debt binge, but history shows Labor had already loosened its purse strings before the pandemic hit, as it traded off restraint to pursue a bold infrastructure agenda.<\/p>\n

Infrastructure spending almost doubled within two years of Labor taking office, jumping from $4.6 billion in 2014-15 to $9.1 billion in 2016-17, as the government accelerated level crossing removals, road upgrades and rail projects.<\/p>\n

But as the infrastructure agenda expanded, so too did concerns about whether the state\u2019s ambitions were in line with reality and public need. The Suburban Rail Loop, the first stage of which is budgeted at $34.5 billion, has been championed as a transformation transport and housing project, but criticised by others as lacking a clear economic case.<\/p>\n

Infrastructure spending again surged from $18.7 billion in 2021-22 to a peak of $24.2 billion in 2023-24. The COVID-19 pandemic landed in the middle of this generational spending spree.<\/p>\n

Lockdowns crimped economic activity and the government spent heavily to stop the economy collapsing entirely. It has attributed $31.5 billion of debt directly to COVID-19 spending.<\/p>\n

Crucially, the debt was taken on when interest rates were at historic lows. Like many first home buyers who took out large mortgages at ultra-low rates, Victoria is now feeling the pain of interest rate hikes.<\/p>\n

The implied average yield (in effect, the interest rate) on Victoria\u2019s borrowings was 2.7 per cent in 2021-22. That\u2019s already bounced back to 4 per cent and is on track to hit 5 per cent in 2030. This explains why even though debt will increase 20 per cent over the next four years, annual interest payments will grow 50 per cent.<\/p>\n

\u201cEven prior to the pandemic there was a pretty widespread view that low interest rates made it a really good time to borrow and invest in infrastructure,\u201d says Michael Brennan, chief executive of the e61 Institute and a former deputy secretary in Victoria\u2019s Department of Treasury and Finance.<\/p>\n

\u201cI was always worried about that advice. Maybe it was difficult for people to perceive the likelihood that interest rates would normalise at some point. But it\u2019s very real, and that\u2019s happened, and that\u2019s part of what\u2019s driven the interest expense to rise.\u201d<\/p>\n<\/p>\n

KPMG chief economist Brendan Rynne says the interest bill is the most important number in the budget for everyday Victorians. Each dollar represents money that won\u2019t be spent delivering government services.<\/p>\n

Rynne says there is nothing inherently wrong with governments taking on debt, so long as it\u2019s being used to facilitate economic growth, which in turn helps pay for the initial investment. Is that what Victoria is doing?<\/p>\n

\u201cIt\u2019s not clear,\u201d he says. If it were, he says, \u201cyou\u2019d be seeing more employment growth, you\u2019d be seeing strong gross state product relative to other jurisdictions where there\u2019s been less capital expenditure\u201d.<\/p>\n

Symes and Allan maintain Victoria\u2019s debt is sustainable. They forecast that debt will peak at 24.9 per cent of GSP next year before declining slightly to 24.4 per cent by 2030.<\/p>\n<\/p>\n

\u201cI do acknowledge there is an alternative approach to cut harder and faster, but that just means cutting into schools and hospitals, and cutting into cost of living support,\u201d Allan said this week.<\/p>\n

Allan and Symes are heavily relying on economic growth to keep the budget under control. But current forecasts from analysts and major banks, amid the US-Israel war with Iran and rising inflation, are well below the government\u2019s optimistic predictions.<\/p>\n

Rynne says Victoria has limited ability to further raise taxes without businesses moving investment interstate, and has few remaining public assets to privatise. That leaves its own spending as the major lever to pull if it wants to balance its budget.<\/p>\n

Brennan thinks Victoria should aim to get its spending growth back to about 4 to 4.5 per cent a year, in line with population growth and inflation, so it can reduce its cash deficits, which are forecast to grow from $7.7 billion to $8 billion by 2030.<\/p>\n

Budget papers show spending grew 6.9 per cent this financial year, while forecasting 3 per cent growth next year and just 0.6 per cent the year after. Brennan says these numbers are \u201ccompletely unrealistic\u201d and imply significant spending cuts.<\/p>\n

\u201cThat\u2019s not going to happen,\u201d he says. \u201cI just don\u2019t think the government has a policy of large-scale, real spending cuts in the next three years.\u201d<\/p>\n

Brennan is also sceptical about the projection that infrastructure spending will moderate, just as construction of the Suburban Rail Loop ramps up. The state government claims the project will cost $34.5 billion \u2013 but that figure has remained unchanged since 2019, despite construction costs soaring 22 per cent.<\/p>\n

Related Article\"Premier<\/a><\/p>\n

\u201cNone of this is easy, but in many areas of core government service delivery, part of what you\u2019re on the lookout for is: are there lower cost settings in which we can try and deliver services?\u201d says Brennan.<\/p>\n

Brennan says the longer the state continues on its current pattern, the more likely it is that Victorians will feel the effect of debt repayments crowding out essential services and infrastructure.<\/p>\n

\u201cThat\u2019s how these things start to manifest. It\u2019s the things that get crowded out, the things that can\u2019t be done: road maintenance, school maintenance.\u201d<\/p>\n

Wilson tapped into one of the dominant political themes of the moment \u2013 the idea of \u201cintergenerational equity\u201d \u2013 this week when she accused Labor of \u201cborrowing from our future to pay for today\u201d.<\/p>\n

\u201cAnd it\u2019s our children \u2026 who will be left to pick up the bill,\u201d she said.<\/p>\n

Economic forecasts can be unreliable, but you can count on hearing that argument plenty of times between now and November.<\/p>\n

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\"PatrickPatrick Hatch<\/a> is transport reporter at The Age and a former business reporter.Connect via X<\/a> or email<\/a>.\"DaniellaDaniella White<\/a> is a state political reporter for The Age. Contact her at da.white@nine.com.auConnect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"Save You have reached your maximum number of saved items. Remove items from your saved list to add…\n","protected":false},"author":2,"featured_media":657960,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[64,63,44],"class_list":["post-657959","post","type-post","status-publish","format-standard","has-post-thumbnail","category-australia","tag-au","tag-australia","tag-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/657959","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=657959"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/657959\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/657960"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=657959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=657959"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=657959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}