With an election looming, Victoria’s debt is huge. But are the state’s finances really that bad?

Victorians head to the polls on November 28. After 12 years with Labor in power, opinion polls show a change of government is a distinct possibility.

The state’s finances are often cited as evidence of the need for change. This has been a strong theme in Victoria, with the Labor government frequently portrayed in the media as having the most troubled budget of all the states.

It is a feature of Australian politics that financial management is assessed by considering debt – especially in the lead-up to an election. But liabilities are only one side of the ledger.

Borrowing to invest in assets is sound financially. Infrastructure is a lumpy spend over many years, which benefits more than one generation of taxpayers.

Contrary to popular belief, Victoria has recently made progress on repairing its financial position. And in some other Australian states, debt is now growing at a faster rate.

Running up a big bill

Victoria’s finances are certainly stretched. Over the past decade, the state’s net debt has increased substantially to reach A$161 billion in 2025-26. That’s more than New South Wales and Queensland’s net debt combined ($150 billion).

Rising interest rates are also making it more expensive to service this debt. Last year, debt servicing costs accounted for 6.9% of the state’s income. This is projected to increase to 9.4% in four years time.

There was a big lift in infrastructure spending (and cost blowouts on major projects) from 2018, and the government borrowed $30 billion to support Victorians during the pandemic.

Over the past three years, however, the state government has delivered on its 2023 promise to return the budget first to an operating cash surplus and more recently a net operating surplus (which takes into consideration non-cash items such as depreciation and superannuation).

In 2025-26, Victoria’s net operating surplus – the preferred measure across Australia’s states and territories – was $2.4 billion. That compares more than favourably with a modest operating surplus in South Australia ($189 million), and operating deficits in:

• Queensland (-$8.8 billion)
• NSW (-$3 billion)
• Tasmania (-$923 million).

The rate of growth matters, too. Over the next four years, Victoria’s $161 billion net debt is forecast to increase by around $39 billion, or 24%. That is similar to projected growth in NSW’s net debt (23%).

But it compares more than favourably with projected growth for Tasmania (34%), South Australia (69%) and Queensland (193%).

Why debt itself isn’t ‘evil’

It is noticeable how much of this focus on debt permeates public discussions. Over the past fortnight, a public advocacy group, Amplify Australia, enjoyed a lot of coverage of its main theme, the level of Victoria’s debt, with major stories published in The Age and The Australian.

However, the overwhelming proportion of Victoria’s debt has been used to accumulate assets. In 2025-26, Victoria’s assets were worth $465 billion compared to $268 billion of total liabilities.

Victoria significantly increased debt-funded capital spending after 2018 to deliver additional infrastructure needed by a rapidly growing population. It then pump-primed Victoria out of what would have been a very big, COVID-induced recession.

This substantial excess of assets over liabilities is one of the main reasons why there should be little reason for Victorians to fret over the state’s finances.

Debt is also a normal part of running and growing a business. Australian businesses currently have over $6 trillion worth of collective liabilities, of which about $1.5 trillion is in the form of debt.

Household debt is currently around $3.2 trillion. For businesses and households, assets far outstrip debts.

Room to improve

This is not to say the government’s financial track record is perfect. In its last term, Labor was criticised for failing to govern the state effectively.

A royal commission is currently under way, examining allegations of corruption, criminal conduct and serious misconduct across Victoria’s major infrastructure program.

The Auditor-General’s Office has also raised questions about the degree of waste involved in pandemic spending. It pointed to over $750 million of write-downs on personal protective equipment, and $72 million of fraudulent and wasteful grants.

However, these sums are a relatively small proportion of the $40 billion spent in total on the pandemic, an exceptional public health emergency.

Why voters may look beyond debt

It would be preferable for Victoria to have a larger operating surplus and a lower infrastructure spend now, so that it builds up debt more slowly, in anticipation of the next slowdown.

That is an issue of degree, and not one of crisis management. The Labor government has preferred to spend whatever unexpected revenues have come its way on not well-targeted policies, such as free public transport and car registration rebates for all.

It is here that the Victorian government can be legitimately criticised, and where the case for a change of government may be stronger.

Contentious issues ahead of this election include the proliferation of potholes, approval of high-rise developments despite local objections and a post-pandemic surge in brazen crime that has become a perceived feature of the state once best known for its livability.

These issues are about good government, or the lack of it, not poor financial management.