Victoria is in surplus. So why did net debt rise to $160.7 billion?

Key facts: what the 2025-26 Victorian accounts say

1. Victoria's general government operating surplus was $2.392 billion in 2025-26, against a $2.775 billion deficit in 2024-25 (restated). It is the first surplus since 2018-19 (Department of Treasury and Finance, 2025-26 Financial Report, Table 2.1, 15 October 2026).
2. General government net debt was $160.7 billion at 30 June 2026, which is 24.0% of gross state product, up from $150.9 billion and 23.7% a year earlier (same report, Table 2.1).
3. Net debt rose by $9.8 billion in the year, which the report describes as the smallest annual rise in nominal net debt since 2018-19 (same report, Chapter 2).
4. The cash result, after infrastructure spending, was a $5.2 billion deficit, down from $12.8 billion in 2024-25 (same report, Table 2.1).
5. Interest expense was $7.871 billion in 2025-26, up from $6.774 billion, a rise of about 16% (approx., calculated from Table 2.2). It equalled 6.9% of revenue.
6. Grants from the Commonwealth and others were $57.3 billion, about 50% of total revenue of $114.5 billion (same report, Table 2.2; share calculated by this site).

What do the accounts actually say?

The Department of Treasury and Finance released the 2025-26 Financial Report on 15 October 2026. It is the audited-basis outcome for the year to 30 June 2026. On the same day the Premier's office issued a release headed "Victoria's Economy Continues To Grow". It said the operating surplus of $2.4 billion was the largest since 2016-17 and that net debt was $4.7 billion lower than estimated in the May budget.

Both statements match the report. The estimate in the 2026-27 Budget was a $727 million surplus and net debt of $165.3 billion, so the final result was better on both counts. The Treasurer, Colin Brooks, said in the release that "the Victorian economy remains resilient". Finance Minister Enver Erdogan said: "A surplus, a growing economy, and more jobs – that's what Labor delivers."

The release leaves out some of the same report's figures: the cash deficit, the $9.8 billion rise in net debt and the 16% rise in interest. None of this is hidden. All of it is in the tables. But a headline that says "surplus" and a headline that says "debt" can both be accurate, and that is why people keep asking which one to believe.

Is Victoria really in surplus?

On the operating measure, yes. Total revenue and income was $114.469 billion and total expenses were $112.078 billion, leaving $2.392 billion (Table 2.2). The surplus is real and it is a large turnaround from a $2.8 billion deficit a year earlier.

The operating measure has a limit. It leaves out most spending on buildings, roads and rail. That spending is counted separately as government infrastructure investment, which was $20.5 billion in 2025-26, down from $23.3 billion the year before. When it is included, the state still spent more cash than it took in. The cash deficit was $5.159 billion. The report notes this is the smallest cash deficit since 2018-19, which is progress, but it is still a deficit, and it was funded by borrowing.

That is the plain reason net debt rose in a surplus year. The report says the $9.8 billion increase "primarily reflects additional borrowings required to fund the State's capital program."

A surplus on the operating line and $9.8 billion more net debt can both be true. They measure different things.

Where did the extra money come from?

Mostly from Canberra. Revenue rose by $13.1 billion in a year, from $101.380 billion to $114.469 billion, a rise of about 13%. Grants accounted for $10.0 billion of that, rising from $47.304 billion to $57.338 billion. That is about 77% of the increase (approx., calculated from Table 2.2). Grants are now about half of all revenue.

Against the May forecast the pattern is the same. Revenue came in $2.6 billion above the revised estimate, and $2.1 billion of that was grants. The report points to higher GST payments, driven by growth in the national GST pool, a higher Victorian GST relativity and Victoria's population share. It also lists Commonwealth funding for the Suburban Rail Loop and for Melbourne Airport Rail.

Victoria's own taxes also grew. Taxation revenue was $41.576 billion, up about 7% from $38.942 billion. The report credits higher land transfer duty, from more settlements at a higher average duty per transaction, and higher payroll taxes, including the Mental Health and Wellbeing Levy and the COVID Debt Levy on payrolls above $10 million.

The point is not that Commonwealth money is illegitimate. GST is distributed under national rules, and project grants arrive with matching spending. The point is that a surplus built on federal grants depends on federal decisions that Victoria does not control.

How much debt does Victoria have, and is it still growing?

General government net debt was $160.7 billion at 30 June 2026. That is the figure usually quoted. A wider measure includes state-owned bodies such as VicTrack and the water corporations. On that wider measure, non-financial public sector net debt was $188.4 billion, or 28.1% of gross state product, up from $175.2 billion (27.5%) a year earlier (Table 3.3). Total borrowings on that measure were $227.9 billion, up from $208.5 billion.

The ratio of net debt to the size of the economy rose only 0.3 percentage points, from 23.7% to 24.0%. The report says this is the lowest annual increase in that ratio since 2016-17. The state's economy is growing, and that makes the ratio rise more slowly than the dollar figure.

The forecast is for more. The 2026-27 Budget, as reported by the ABC on 5 May 2026, projects net debt of $199.3 billion in 2029-30 and about $40 billion of further borrowing over four years. The report says net debt as a share of the economy is forecast to peak in 2026-27, but the dollar figure keeps rising after that in the budget projection. An S&P analyst told the ABC at the time that Victoria has the highest debt in Australia and that "there is no, at the moment, path to repayment of that debt." Treasurer Jaclyn Symes, who delivered that budget, described its aim as to "stabilise" debt before reducing it. The Treasurer's portfolio has since passed to Colin Brooks.

For the longer history, see our pages on Victoria's state debt, the pandemic legacy debt and the Labor states and the debt mountain.

What does the debt cost Victorians every day?

Interest expense was $7.871 billion in 2025-26, up from $6.774 billion. That is about $21.6 million a day (approx., calculated from the report). The report attributes the rise to more borrowing and a higher average cost of borrowing, as market interest rates rose during the year.

The budget projects the daily figure at $24.4 million this year, rising to $32.3 million a day by 2029-30, with annual interest above $11 billion (ABC News, 5 May 2026).

A popular claim is that one dollar in every ten of Victorian revenue now goes on interest. That is not what the 2025-26 accounts show. Interest was 6.9% of revenue, against 6.7% a year earlier and an estimate of 7.0%. A figure of roughly 10% by the end of the decade has been attributed to Moody's in a MacroBusiness article of 19 October 2026 (a commentary piece; we have not seen Moody's original). Treat it as a risk, not a current fact.

All three rating agencies keep Victoria on a stable outlook: AA+ from Fitch, AA from S&P and Aa2 from Moody's (Financial Report, Chapter 1). Markets are not treating this as a crisis. The debate is about direction, not default.

Who caused this, and what was inherited?

The fair answer separates three things.

What the government chose. The main driver of rising debt is the capital program: the Metro Tunnel, the West Gate Tunnel, level crossing removals, North East Link and the Suburban Rail Loop. These were decisions of successive Labor governments. The report names the capital program as the reason net debt rose. Spending also ran above forecast: expenses were $891 million higher than the May estimate, and employee expenses rose from $38.515 billion to $40.448 billion, about 5%. The report ties that to health, education and justice, including Victoria Police and Corrections, and to enterprise bargaining agreements.

What it inherited or presided over. The report says 2025-26 is the first operating surplus since 2018-19, so the state ran operating deficits through the pandemic years and after. Higher market interest rates are raising the cost of the debt, and the state does not set them. Victoria's share of GST is set by national formulas, and the report lists it as a driver of the revenue gain.

What is still open. Whether the large project costs delivered value is a separate question. We cover it in our pages on the Big Build cost blow-out and the Suburban Rail Loop. The Financial Report does not answer it.

What did the government get right?

Give credit where the figures support it. A $5.2 billion swing from deficit to surplus on the operating line is large, and the government set a target of returning to operating surplus from 2025-26 and met it. The cash deficit has more than halved in a year, from $12.8 billion to $5.2 billion. The net debt ratio rose by the smallest margin in a decade. Interest as a share of revenue is 6.9%, only 0.2 points above last year. The Metro Tunnel is built and in the accounts as a completed asset. These are results, not announcements.

Which popular claims hold up?

Each claim below is tested against the 2025-26 Financial Report and the sources listed at the foot of the page.

• "Victoria is back in the black." Partly supported. The operating surplus of $2.4 billion is real. The cash result was still a $5.2 billion deficit, and net debt rose $9.8 billion.
• "Victoria has the most debt of any state." Supported on the available evidence. An S&P analyst said so to the ABC on 5 May 2026, and our state debt page sets out the comparison. We did not re-check other states' 2025-26 accounts for this piece.
• "Debt is spiralling out of control." Not supported as worded. The rise of $9.8 billion was the smallest in nominal terms since 2018-19, the debt-to-GSP ratio rose 0.3 points, and ratings are stable. It is supported in a narrower sense: the budget projects net debt of $199.3 billion by 2029-30.
• "One dollar in every ten goes on interest." Not supported today. The figure is 6.9% of revenue. It is a forecast risk, per a Moody's estimate reported by MacroBusiness.
• "The surplus was achieved by restraint." Not supported. Expenses rose about 7.6% to $112.1 billion and ran $891 million over forecast. Revenue rose about 13%, and about 77% of that rise was grants.

What should readers watch next?

Three things. First, whether net debt as a share of the economy peaks in 2026-27, as the budget says. Second, whether Commonwealth grants stay near half of revenue. Third, the Auditor-General's report on the state's annual financial statements, which for 2024-25 was published in November 2025. Each will show whether the 2025-26 improvement is a trend or a good year.

For the wider record, read the Victorian Labor government scorecard, and for the national picture see the interest bill.