The sentiment within the Victorian government is undeniable ahead of Tuesday’s state budget.
Rather than warnings of “hard” or “challenging” decisions in lead – what happened in recent years – Prime Minister Jacinta Allan announced a series of major ticket announcements throughout the week, each accompanied by a press release from the budget headline: “A focus on what matters most.”
The government has invested $5 billion in public transportation, $727 million in prisons, $61 million in stamp duty discounts, $167.3 million in support of school tours and camps, and $976 million in regional roads.
However, the biggest announcement is Allan saving for the weekend, announcing plans to provide free public transport for Victorians under 18 on Sunday and free public transport for seniors on Saturday.
There is no doubt that cost of living measures will be at the heart of next year's budget and labor campaign. Although funds for the program have been locked in for four years, the government warns that it may not survive under the alliance.
More good news is expected, including an expected $1.6 billion operating surplus, as forecasts in December's economic update.
If it happens, it will be the first in Victoria since the start of the 19 pandemics.
Despite its political weight, the surplus is modest – economists warn that it doesn’t tell the full story.
For economist Saul Eslake, one of his bugs is the bottom line of the state’s treasurer using net operational surplus to measure budgets.
"My suspicion is that if you ask Jim Chalmers what the network operation surplus is, he won't know," Eslake said.
"Don't be fooled by it."
He said the figure does not include government infrastructure and other capital expenditures, both of which are “unsustainable” in Victoria.
Once both are considered, Eslake said the state is in a more “unstable position” – the budget update mid-term forecast of a cash deficit of $9.4 billion in 2025-26, $7.7 billion in 2026-27 and $6.8 billion in 2027-28.
Eslake said the state’s staff expenses alone account for 38% of the budget, much higher than the Commonwealth’s 7% because it provides more front-line services.
The mid-year update forecasts employee spending will reach $38.4 billion in 2025-26, a figure that is likely to grow as the new enterprise negotiation agreement takes effect.
This is not a new challenge. Former Finance Minister Tim Pallas has had several failed attempts to rule the public sector.
One of the first bills by his successor, Jaclyn Symes, was the appointment of former Prime Minister and Cabinet Secretary Helen Silver to lead the review aimed at dominating public sector spending.
Silver's interim recommendations are expected to be reflected in Tuesday's budget, ahead of the final report that expires in June.
There are already signs of cuts. The Guardian Australia has previously reported on the large reduction in the number of court resources for organizations such as the RSPCA, and plans to prevent community crimes and funds.
Plans created during the pandemic survived earlier budget knockouts and are now facing an axe.
For Monash University economist Zac Gross, the biggest concern is the state's infrastructure bill.
The December update showed that infrastructure spending reached $21.7 billion in 2025-26, and then gradually decreased slightly. But debt remains high - forecast to reach $168.5 billion in the fiscal year and climb to $187.3 billion by 2027-28.
"It's going up and there's no sign of peaking," Gross said. "I'd feel more optimistic if we learn about peaking in Tuesday's budget."
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It is understood that the government is eager to avoid reaching the $200 billion debt threshold.
Michael Brennan, deputy secretary of the Victorian Treasury Department and chairman of the Productivity Commission, warned that the state's fiscal strategy needed "curriculum correction."
He said in a recent blog post by E61, a research firm, that the state's interest bill (which is expected to cost $7.4 billion in 2025-26) will rise 40%.
"Victoria has already spent more than it was on the police. But that's just the beginning," Brennan wrote.
Another factor behind the optimistic pre-budget tone could be the state’s $7 billion GST windfall over the next two years, and the promised during the campaign, as well as billions of dollars in federal labor government infrastructure funding. The state delayed its budget for two weeks to see what it can ensure.
Eslake said surprises should be used to follow the bottom line rather than spending.
"If all they were going to do was rely on the extra $7 billion of GST and not make structural changes, I would mark them down," he said.
The tone of the credit rating agency is also softened. In his last action as treasurer, Pallas visited New York to briefly introduce his position in Victoria.
The recent public statement, although not shining, is more tolerant than in previous years.
Rebecca Hrvatin, Melbourne-based global rating analyst, said Victoria's performance was "on a trend of improvement", but the warnings were further dependent on discipline.
“What we are looking for in the next budget is the state’s commitment to controlling operating costs and stabilizing debt levels,” she said. “Financial discipline will be key to maintaining the rating and including the costs of large infrastructure programs in the state.”
Internally, Workforce Congressmen have been urging Allen and Sems to show a restrictive budget bottom line in a timely and timely manner in the 2026 national election, rather than resorting to any new or increased taxes.
A MP noted that despite strong opposition, the controversial new emergency service tax was passed through Parliament this week. During the debate, some CFA volunteer firefighters stepped out of the protests.
"We can't get closer to the election," the MP said.
That MP, along with others, hopes that discipline will now provide the government with more space to spend in 2026, and they say it needs to be a need to ensure a historic fourth term.
However, continuing the line for the next 18 months is not easy and the challenges are significant. However, in Allen's cabinet, labor sources said no one was more competent in the task than Sems.