Victoria forecasts weak growth and large cash deficits despite operating surpluses

Victoria's pre-election budget update forecasts weak growth, higher unemployment and A$33.3 billion in cash deficits over the next government's term, despite small operating surpluses. The 12 November figures led economists and ratings analysts to question how readily either side could repair the budget before the 28 November election.

An operating surplus is not a cash surplus after capital spending. Including capital expenditure, the general-government sector is projected to run annual deficits between A$7.9 billion and A$9.1 billion through June 2030, a A$2.8 billion deterioration since October's statement. Forecast operating surpluses of A$700 million this year and A$800 million in 2027-28 are each A$300 million better than the previous outlook.

Growth for 2026-27 was cut from May's 1.5 per cent forecast to 1 per cent, the weakest non-pandemic result since 2008-09. Growth is not expected to reach 2.5 per cent until 2029-30. Unemployment over the next two years is forecast at 5.25 per cent rather than 4.75 per cent. Treasury cited lower population growth, persistent inflation and monetary tightening, including five cash-rate rises since February.

S&P Global Ratings analyst Anthony Walker said falling migration and population growth were headwinds for a state reliant on newcomers. He said the Coalition's promised cash surplus by 2032 would be difficult without large operating savings or a major capital-spending reduction. Economist Saul Eslake called repair a very demanding task and said announced savings, after new spending and tax cuts, were small relative to the deficits. These are assessments, not proof that a future surplus is impossible.

Treasurer Colin Brooks said modelling attributed a A$7 billion economic hit and 20,000 fewer jobs over four years to federal migration changes affecting international education. Data-centre and renewable-energy investment are expected to drive growth, but centres face local opposition. Jemena paused proposed 15-metre power poles connected to NextDC's West Footscray expansion after protests. Labor proposed a 150-metre housing buffer and self-supplied renewable energy and recycled water; the Coalition pledged to exclude centres from residential-adjacent and green-wedge sites.

The operating improvement mainly reflects A$1.3 billion from WorkSafe, reclassified from capital repatriations to dividend revenue. Trades Hall secretary Luke Hilakari said the money should return to injured workers and criticised the transfer. Brooks said returning a dividend to taxpayers was reasonable. WorkSafe received A$1.3 billion to remain solvent in 2023; the state subsequently increased average business premiums by 42 per cent and excluded stress and burnout claims.

Net debt is forecast to reach A$196 billion by the end of the next term, with annual interest above A$12 billion. A better 2025-26 result lowers the projected 2030 debt peak, but debt is still set to accumulate faster over the next four years than Treasury expected in May. Opposition leader Jess Wilson criticised the update and said a Coalition government would release another within its first 100 days. She also disputed its treatment of more than A$200 million previously earmarked for non-government schools.

Illustrative Melbourne King Street Bridge in 2018, not a newly announced budget project.