Rising health costs and interest repayments have left Treasurer Jaclyn Symes with little room to manoeuvre in tomorrow's 2026-27 Victorian State Budget, according to the e61 Institute.
New analysis finds these two items alone account for roughly two-thirds of the increase in total government expenditure as a share of the state economy since 2019.
Health spending has risen from around 4.25% to 5% of Gross State Product, while interest repayments have doubled from 0.6% to 1.2% of GSP as pandemic-era debt is refinanced at higher rates.
Victoria's net debt has risen from around 5% of GSP before the pandemic to more than 20% today, driven by the costs of COVID lockdowns and the post-pandemic capital spending spree headlined by the Big Build. It is projected to peak at around 25% over the next few years.
“Victoria is not broke, but it is increasingly boxed in,” said e61 Institute CEO Michael Brennan.
“The finances are weak, with limited room to manoeuvre. This isn't the moment for the kind of pre-election spend-up we'd normally expect six months out from a poll.”
The fiscal squeeze is compounded by cost blowouts on major infrastructure projects, which undermine the case that current borrowing is genuinely an investment in the future. Infrastructure Australia’s 2018 Project Evaluation shows the North East Link was initially estimated at $8.7 billion, with projected benefits of $10.8 billion. Its cost has since risen to around $26 billion. Even allowing for some increase in benefits since 2018, future taxpayers will likely pay more in interest on the project than they receive in benefits.
The costs of Suburban Rail Loop are yet to meaningfully hit the Budget, but with its much bigger price tag, it risks an even larger-scale repeat.
Meanwhile, Victoria's hospital costs per patient have risen faster than any comparable state, going from the lowest on the east coast in 2017-18 to above the national average in 2024-25, despite Commonwealth Grants Commission assessments suggesting Victoria should be one of the most efficient jurisdictions on the delivery of acute health services. The higher cost does not seem to have delivered measurable improvements in beds per capita, wait times, or adverse event rates.
"Treasurer Symes has the unenviable task of maintaining a credible fiscal trajectory, repairing past fiscal damage, and dealing with the health and hospitals juggernaut, all while Victorians face another cost-of-living shock,” said Mr Brennan.
“Successive Victorian governments have promised fiscal restraint without delivering it. The situation now necessitates a real shift from past fiscal habits.”
Contact details:
Charlie Moore: 0452 606 171
