AUTHOR

Devika Shivadekar
Devika Shivadekar
Economist

The Victorian Government’s 2025-26 budget, delivered on 20 May 2025, prioritises cost-of-living relief and frontline service funding while attempting to stabilise the state’s precarious fiscal position. 

Treasurer Jaclyn Symes announced a record $2.3 billion cost-of-living package alongside a projected operating surplus of $600 million, marking Victoria’s first surplus since the pandemic. However, concerns persist over the feasibility of these measures given the state’s $194 billion net debt projection by 2029 and rising interest payments.

Cost-of-Living Support

The budget’s centrepiece targets household budgets through transport, energy, and healthcare savings. A $320 million initiative provides free weekend public transport for seniors and free travel for under-18s, while $118 million aims to reduce energy bills via renewable energy projects and subsidies for heat pumps and solar installations. Eligible concession card holders will receive a $100 Power Saving Bonus, building on previous rounds that helped households save up to $1,600 annually. Pharmacists gain $18 million to treat minor ailments, potentially reducing GP visitation costs. These measures respond to inflationary pressures but risk becoming recurring expenses rather than structural solutions.

Frontline Services and Infrastructure

Healthcare receives significant investment, with free urgent care clinics, expanded mental health services, and women’s health hubs forming part of a $529 million allocation. Education continues its $1.6 billion school-building programme, while major projects like the Metro Tunnel near completion. However, housing initiatives appear underfunded at $407 million despite the ongoing crisis, focusing instead on streamlining planning processes and regional industrial land development.

Fiscal Position and Debt Concerns

While the government emphasises its return to surplus, broader fiscal indicators reveal vulnerabilities. Net debt is projected to climb to $194 billion by 2029, with interest payments consuming $10.56 billion annually by 2028–29 – more than the entire cost-of-living package. The Institute of Public Affairs notes a $16 billion public sector cash deficit obscured by accounting practices, alongside a 22.3% tax revenue increase over four years. Victoria’s reliance on property taxes – 18 separate levies – complicates efforts to stimulate investment and housing construction.

Feasibility Assessment

The budget’s strengths lie in targeted relief and infrastructure delivery, but long-term sustainability remains doubtful. Debt servicing costs threaten future service funding, while housing underspending risks exacerbating supply shortages. The projected surplus relies on optimistic economic growth assumptions and does not address structural revenue challenges. With credit rating downgrades likely and business support minimal, Victoria’s path to reducing its debt-to-GSP ratio from 25.2% appears fraught.

Conclusion

While providing immediate household relief, the budget’s fiscal strategy lacks the bold reforms needed to address Victoria’s debt burden and tax complexity. The surplus achievement offers temporary respite, but without addressing rising interest liabilities and housing supply constraints, the state’s economic resilience remains uncertain.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact Devika Shivadekar.

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