Victoria Faces Mounting Fiscal Challenges Amid Rising Debt

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Victoria, Australia's most indebted state, is experiencing heightened financial scrutiny.

The state has managed to retain its AA credit rating, but global rating agencies have urged the government to implement debt reduction strategies and exercise fiscal restraint as the November 2026 election approaches.

The recent release of the 2024-25 Financial Report by the Victorian Department of Treasury and Finance highlighted a decreased operating deficit of $2.6 billion in 2024-25, down from $4.2 billion the previous year and surpassing the May 2025 budget forecast by $816 million.

Despite these improvements, Victoria's net debt surged by $17.6 billion to reach $150.9 billion, with government spending climbing by $6.7 billion to $104 billion, aligning with budget forecasts. The primary catalyst for the state's better-than-expected budget outcome was an unforeseen revenue increase from Commonwealth grants, which jumped 13% to $47 billion, fueled by increased GST revenue. This upward trend in GST is projected to continue into the 2025-26 financial year.

Victoria's financial outlook is further buoyed by higher federal grants tied to energy bill relief payments, the National Health Reform Agreement, the Pharmaceutical Benefits Scheme, and funds from the Preschool Reform Agreement. However, independent economist David Hayward attributed the positive budgetary news to fortune rather than adept financial management. Hayward emphasized the need for bolstering the budget, noting that the debt remains substantial.

The Victorian government faces considerable fiscal headwinds, with potential liabilities attached to significant infrastructure projects like the $35 billion Suburban Rail Loop, largely unfunded as tunneling preparations begin next year. Furthermore, Victoria's dependence on government-funded employment represents an additional economic vulnerability.

The proposed 'treaty' legislation with First Nations peoples, if passed by the Victorian parliament, could establish a First Peoples’ Assembly with remarkable authority, potentially complicating state governance. Concerns have been raised regarding the Assembly's capacity to influence government operations and expand administrative costs, drawing parallels with powers rejected in the recent Voice Referendum, where 54.15% of Victorians voted against the proposed amendments.

Experts, including Robert Gottliebsen of The Australian, have warned of the risks associated with the Assembly's powers, which may challenge the governability of Victoria. The impending legislative changes could provoke a credit rating review by New York-based agencies, should the associated administrative costs and governance challenges become evident.

As Victoria's residents already bear the highest tax burden in Australia, the potential implementation of the treaty threatens to exacerbate economic pressures by introducing additional bureaucratic layers and extending benefits to a select group, thus heightening financial concerns in the state.

Published:Thursday, 23rd Oct 2025
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.