Victoria records first post-pandemic surplus as debt heads toward $200bn

Victoria's treasurer walked into the budget lock-up on Tuesday with news that would have seemed impossible just a few years ago: the state had balanced its books. For the first time since the pandemic upended everything, Victoria recorded an operating surplus—$727 million in the 2025-26 financial year. It was a modest victory, but a victory nonetheless, and Jaclyn Symes made sure everyone understood what it meant. Among the eastern seaboard states, Victoria stood alone in the black. Only Western Australia and South Australia had managed the same feat across the entire country, and Symes was quick to note that those two had advantages Victoria could only envy: Western Australia's mineral royalties and South Australia's sweetheart GST arrangement. Victoria had done this the hard way, squeezing out a surplus despite what she called a "structural disadvantage" in how the federation divvies up revenue.

The surplus itself had grown slightly since December's forecast. Back then, treasury had predicted $710 million. A year earlier, in May, the estimate had been even smaller at $611 million. The trajectory suggested something was working—disciplined spending, strong economic growth, the kind of steady hand that governments like to claim credit for. Looking ahead, the forecasts only got rosier: $1.05 billion in surplus for 2026-27, then $1.86 billion, $1.94 billion, and $1.97 billion in the years that followed. On paper, Victoria's finances appeared to be healing.

But the operating surplus told only part of the story, and perhaps not even the most important part. When you factored in the money the government needed to spend on infrastructure and capital projects—the roads, the schools, the hospitals—the picture darkened considerably. Victoria was actually forecast to run a cash deficit of $7.7 billion in 2026-27, a figure that would shrink slightly before widening again toward the end of the decade. More troubling still was the debt trajectory. The state's debt sat at $165.3 billion in June 2026 and was forecast to climb to $199.3 billion by 2029-30. By then, interest payments alone would consume $11.82 billion annually—roughly $32 million every single day, money that could not be spent on services or infrastructure but simply handed over to creditors.

The budget, released under the banner "Easier. Safer. More Affordable," allocated $13.8 billion in new spending since December's update. There was $750 million to provide a 20 percent refund on car registration fees, a direct attempt to ease the cost of living for households. Public transport received $432 million to extend free fares through May and then offer half-price travel for the remainder of 2026. The government also committed $2.4 billion over five years to a new program called Thriving Kids, designed to support children with autism who would be removed from the national disability insurance scheme. These were tangible commitments to voters, visible in their daily lives.

Yet the government found only $607.5 million in savings to offset these commitments over four years—what the budget papers euphemistically called "back of house efficiencies" in the public service. The government had already signed off on a plan to cut 1,000 public sector jobs, including 300 executive positions, and to merge several agencies. The public sector wage bill, meanwhile, sat at $41.13 billion, consuming 35 percent of total revenue. Tax revenue was forecast to grow from $41.52 billion to $43.18 billion, with an average annual increase of 5.1 percent over the forward estimates. But stamp duty—a major source of state revenue—was expected to decline in the coming year as higher interest rates cooled the property market. Poker machine revenue would also fall due to mandatory carded play, though lottery revenue would rise thanks to a new 40-year licence extension granted to the Lottery Corporation, allowing it to operate until 2068.

All of these projections rested on assumptions that the world would cooperate. The budget assumed Victoria's economy would grow by 1.5 percent in 2026-27, accelerating to 2 percent and then 2.5 percent in subsequent years. It assumed inflation would peak at 3.5 percent before tapering to 2.5 percent by 2029-30. It assumed the Reserve Bank of Australia would lift the cash rate to 4.35 percent by mid-2026 and hold it there through 2026-27 before gradually declining to 3.5 percent by late 2028. Symes defended these assumptions as conservative, no rosier than anyone else's. But the budget itself acknowledged the fragility of the outlook. Economic forecasts were subject to "elevated" uncertainty, it warned, amid a "highly uncertain geopolitical backdrop." The world had become less predictable, and Victoria's financial recovery depended on it staying calm.