The State's Financial Position
Given the budget is essentially the revealing of the state’s financial position for the past year and budget of the future years – it would be remiss of us to skip over the financial position of the state.
Operating Surplus
For the 2025-26 year, a surplus of $700m is reported, rising to a projected $1b next year and $1.9b – $2b for the years following. A surplus is absolutely better than a deficit – so there are indications that the financial position of the state is improving.
Net Debt
Net debt is at $165.3b for the 2025-26 year, growing to $175.6b next year and is expected to be $199.3b by the 29-30 year. Put another way, that’s around $25,000 of debt per person… which is a scary thought.
You may have the question “why is debt increasing if we have a surplus?” – well, a surplus or deficit is a measurement of what we call “operating expenses”, and importantly there are a number of expenses of the Government that are “non-operating expenses” and are therefore not factored in when calculating a surplus or deficit. This is largely investment in infrastructure.
So while the Government can say they have a surplus and are financially responsible, it’s often pointless unless that surplus actually results in debt coming down. Ultimately, if you are spending more money than you are earning – it’s not usually a good outcome.
Interest
Having said that, not all debt is bad debt – if you invested $100b in infrastructure (via debt) but were able to generate an extra $15b of revenue each year from that investment, then you’d say that’s a pretty good deal – the key is that the financial benefits of the debt must at the very least outweigh the interest.
Victoria will incur just short of $9b of interest in 2026-27. To put it into perspective, that’s the approximate cost to build:
- 2 major hospitals per year; and
- 30 community hospitals per year; and
- 50 schools per year.
Not either / or… we are missing out on all of the above each and every year. $9b is alternatively enough to fund 55,000 nurses and 45,000 police – which would make a huge difference to our quality of life.
The question we need to ask is whether forgoing this each year is worth the infrastructure being built.
The State's Tax Base
It’s important to understand where the Government gets its $115bn of income from:
- Federal Government funding (incl GST): $56b
- Payroll tax: $12b
- Land tax: $10b
- Stamp duty on land: $10b
- Sales of goods and services: $8b
- Vehicle registrations: $4b
- Dividends and interest: $4b
- Gambling taxes: $3b
- Other stamp duty (e.g. insurance): $3b
- Other: $5b
And then where that money is spent:
- Health: $35b
- Education: $25b
- Treasury and finance: $17b
- Justice: $10b
- Transport and planning: $10b
- Families and housing: $9b
- Everything else: $8b
The Major Budget Announcements
For most people, what matters is how the budget directly impacts them – which is usually in the form of tax or benefit changes. Below we summarise the main items for you.
Car registrations will be 20% cheaper, the catch is that you have to manually apply for a rebate and it’s not just discounted off your next renewal. The sceptic in me suggests that this is so everyone gets their rebate just in time for the next election (and not just those with their rego due before the election) – but regardless, discount when times are tough is very much welcome.
Previously announced (and currently in place) is free public transport which is scheduled to end this month. For the remainder of the year, the cost of public transport will be halved, and children will be free.
Discounts for concession holders will continue, however we note that these aren’t as generous as they are made out to be.
For example, you can get a 50% discount on council rates (sounds great), but it’s capped at $266 per year. I don’t know of many household that has council fees of $512 or less per year and will actually get 50% off their council fees.
3 year olds starting kinder will be given a free bag containing books and educational toys to help support their learning and growth.
The State Government will continue to invest money into cheaper school uniforms, outside hours care, healthy breakfasts, Get Active Kids vouchers, free kinder, and vision screening (eye tests). Around $100m will be invested here, which in reality, compared to total state taxes received of over $40bn, isn’t as great as it sounds.
The Government will continue to provide $10,000 of First Home Owner Grants and stamp duty exemptions and reductions.
To encourage people to build houses instead of buying existing ones, the stamp duty concession for “off the plan” purchases will be extended for a year.
It’s just a shame that they don’t address the actual reason why new homes cost a small fortune compared to just 5 years ago… That would provide much greater savings and incentives than a small stamp duty concession.
It will be free for children under 16 to go to the zoo on weekends, public holidays, and school holidays.
A large proportion of the above is simply the continuation of existing programs and not necessarily new spending.
What's Misleading
Every Government likes to use specific phrasing that exaggerates things to make them look better than they actually are, but the key to understanding whether we are actually better off.
Growth Forecasts
We are currently in the middle of what feels to be both high inflation and and recession at the same time, with a war in the Middle East complicating that.
Does anyone think this is the formula that will result in our economy growing by 11.5% next year? Our Government does…
If the economy actually grows by something closer to average (3% or 4%), it wildly changes the budgeted figures. If the budget reported a deficit of $5b instead of a $1b surplus – I’m guessing people would have a very different opinion of the financial credentials of the Government.
The Pothole Blitz
The Government is spruking that it will spend over $1b on fixing potholes and resurfacing roads. The reality is that this is the entirely of the road maintenance program, not just money for potholes and resurfacing.
Still, a billion dollars sounds great and it’s promoted as if it’s a billion extra dollars (which it isn’t).
The reality is that the annual road maintenance budget was around $950m in 2022-23 and was similar in all the years in between. 2025-26 was $976m – so the $1.04b dollar “record spend” is only a 6.5% increase in spending… which, let’s face it, is simply inflation and population growth.
Record Health and Education Spending
Inflation dictates that if you do the exact same thing next year, the amount you spend will be higher than the previous year.
Or, in Government speak – record levels of investment in health and education…
The reality is that these are barely keeping pace with inflation and population growth.
The Projected 2026-27 Surplus
Putting aside the fact that a “surplus” is misleading because the Government is still spending more money that it makes – the projected surplus of $1bn for 2026-27 is actually about a $1bn less than what was projected only 6 months ago. If that trend continues, that surplus will disappear very quickly.