Victoria’s 2025-26 Budget Draws Mixed Reactions Amid Economic Headwinds

Victoria, Australia – May 23, 2025 – The Victorian government’s 2025-26 state budget, unveiled earlier this week, has sparked a range of responses from economic analysts, business leaders, and community advocates. While the budget projects a return to surplus—$600 million in 2025, rising to $2.4 billion by 2027—the state’s growing debt and fiscal strategies remain under scrutiny.

Key Fiscal Figures and Debt Concerns

The government forecasts total revenue of $108.3 billion for 2025-26, with annual growth averaging 2.6% through to 2028-29. Taxation revenue is set at $41.7 billion for 2025-26, expected to grow by 4.7% annually. However, net debt is projected to reach $155.5 billion by June 2025, climbing to $185.2 billion by June 2028. As a proportion of gross state product (GSP), debt will peak at 25.2% in 2027 before a gradual decline. Interest payments are anticipated to consume 8-9% of annual expenditure.

Critics argue that such debt levels—currently the highest among Australia’s states—limit Victoria’s capacity for new investments and could pose long-term fiscal risks, especially as more funds are diverted to service debt rather than infrastructure or essential services.

Cost-of-Living and Social Investments

The budget dedicates $2.3 billion to cost-of-living relief, including $529 million to expand free healthcare and $156 million for direct household support. Housing affordability is also addressed, with $407 million allocated for land development and continued stamp duty concessions for off-the-plan properties.

In education, $4.9 billion is earmarked for schools and early childhood programs, with $1.5 billion for new schools and upgrades, and $2 billion for the “Best Start, Best Life” reforms, including free kindergarten for three- and four-year-olds.

A notable $15.2 million investment targets adult education and job training, particularly for vulnerable groups. Programs like Geelong’s Cultura are set to enhance skills development for migrants and refugees, aiming to boost workforce participation and social integration.

Infrastructure and Creative Industries

Major infrastructure announcements are modest, with most funding directed at ongoing projects rather than new ventures. Highlights include the $4 billion Sunshine Station Transport Superhub and hospital expansions. The government’s ability to launch new projects is increasingly reliant on federal co-funding.

The creative sector will receive $552.2 million over four years, supporting public institutions and events such as the National Gallery of Victoria, Melbourne Recital Centre, and the Melbourne International Film Festival. Investments also extend to regional arts initiatives and the screen industry, reinforcing Victoria’s reputation as a cultural hub.

Business and Taxation Measures

To support business growth, $627 million is allocated for expansion and investment attraction, with a $150 million Victorian Investment Fund focused on regional development. Payroll tax thresholds will rise from $900,000 to $1 million from July 2025, offering relief to small and medium enterprises.

The budget introduces no major new taxes but implements previously announced changes, such as replacing the Fire Services Property Levy with the Emergency Services and Volunteers Funding Levy, expected to raise $1.6 billion in 2025-26.

Controversies and Community Concerns

Despite the projected surplus, business groups and some economists warn that high debt and interest payments could stifle economic recovery and lead to future tax hikes. Reports of business closures and economic strain have fueled criticism that current fiscal policies may be unsustainable.

Public safety and law enforcement are also in the spotlight. The state’s police training program has been shortened by six weeks, making it the briefest in Australia—a move intended to boost frontline numbers but criticized for potentially lowering training standards. Separately, a Victorian police officer was recently found to have committed misconduct in a 2019 incident resulting in a woman’s death from plastic bullet injuries, renewing calls for police reform and accountability.

Outlook

The 2025-26 Victorian budget seeks to balance fiscal repair with targeted investments in social supports, infrastructure, and creative industries. However, significant debt and ongoing economic pressures ensure that debate over the state’s financial direction will continue in the months ahead.