In mid-2023, a Melbourne landlord with a single rental property — the kind of owner routinely described in state parliament as a "mum and dad" investor — opened a letter from the State Revenue Office that had not existed the year before: a new flat land tax surcharge, arriving every year until 30 June 2033 (State Revenue Office Victoria, COVID Debt Repayment Plan, 2023). She had not borrowed a dollar from the state government and had no say in how Victoria spent through the pandemic or built its transport projects. But her modest investment property had become one line in a repayment plan built to chip away at a debt that, on the government's own forecasts, keeps growing faster than the plan can repay it. Multiply her by the hundreds of thousands of landholders and businesses now paying the same surcharges, and her letter is the clearest evidence most Victorians will ever see, in their own mailbox, that the state's debt is no longer an abstract budget line — it is a bill with their name on it, running into the 2030s.
What the government did
Victoria's net debt is the accumulated result of two overlapping programs run across the Andrews and Allan Labor governments since 2014. The first is the Big Build: a rolling pipeline of transport projects — the Metro Tunnel, the West Gate Tunnel, the North East Link, hundreds of level crossing removals and, more recently, the Suburban Rail Loop — which the government describes as the largest infrastructure program in the state's history, with a combined value in the order of $100 billion or more (approx.) once all announced and in-progress projects are counted (Victoria's Big Build, project listings; Victorian Budget Papers, infrastructure statements, various years). The scale of these projects and their cost overruns are examined in a separate audit on this site; this piece is concerned only with what funding them has done to the state's balance sheet.
The second driver was the pandemic. Victoria endured the longest cumulative run of lockdowns of any Australian state, and government borrowed heavily to fund business support, health system surge capacity and household payments through 2020 to 2022. VAGO has quantified the scale: of the $50.6 billion in accumulated operating losses Victoria's general government sector ran up over the six years to 2024-25, government attributes $31.5 billion to its COVID-19 response between 2019-20 and 2022-23, with the remainder linked to the ongoing cost of public services (Victorian Auditor-General's Office, Auditor-General's Report on the Annual Financial Report of the State of Victoria: 2024-25). Jacinta Allan became Premier in September 2023, inheriting both programs already well under way. Her predecessor's government had introduced the COVID Debt Repayment Plan in the 2023-24 Budget — a temporary payroll tax surcharge on large businesses and a land tax surcharge on investment property, both legislated until 30 June 2033 and forecast to raise around $8.6 billion over four years (approx.) toward the debt (State Revenue Office Victoria, COVID Debt Repayment Plan; Victorian Budget Paper No. 2, 2023-24). The Allan government has kept the levy, continued the Big Build, added the Suburban Rail Loop, and kept borrowing on top of it.
The strongest case
Borrowing for assets, in a low-rate world, beat the alternative
Put the government's defence at its best. Victoria was one of the fastest-growing states in the country through the 2010s, adding population at a pace its existing road, rail and hospital network was never built to carry; a government that refused to borrow for infrastructure in that decade would have left a widening gap between where people lived and where services reached. Most of the borrowing funds long-lived assets — rail tunnels, hospitals, schools — rather than recurrent spending, and financing capital works with debt rather than out of each year's tax revenue is standard practice for governments and households alike, provided the assets earn their keep over decades. Much of it was also raised while interest rates sat at multi-decade lows, locking in financing costs that looked far more manageable than they do now. On the pandemic spending specifically, Victoria was not an outlier: every state and territory borrowed heavily through 2020-22, and independent modelling at the time warned that under-spending on lockdown support risked deeper, more prolonged economic scarring than the debt itself. A reasonable observer can conclude a government facing a pandemic and a fast-growing population made a defensible, if expensive, choice to borrow rather than under-invest.
The evidence
The primary record shows three things: how large Victoria's debt has become, how fast it is still growing, and what independent rating agencies conclude about the state's capacity to keep servicing it.
Victoria's net debt sat at around $25 billion (approx.) at June 2019, before the pandemic (Victorian Department of Treasury and Finance, historical net debt data). By the 2026-27 Budget, handed down by Treasurer Jaclyn Symes in May 2026, net debt was forecast at $175.6 billion for that year, on a trajectory the government's own forward estimates put at close to $199 billion (approx.) by 2029-30 (Victorian Budget Papers, 2026-27 Budget, Strategy and Outlook, May 2026). Between June 2024 and June 2025 alone, net debt grew by more than $17.6 billion — over $48 million a day (approx.) — even as the government described the budget as returning toward operating balance. Victoria's net debt is now larger, in dollar terms, than New South Wales' and Queensland's combined, and at around a quarter of gross state product (approx.), roughly double the debt burden of any other mainland state relative to the size of its economy (respective state budget papers, 2025-26, approx.).
Two ratings agencies stripped Victoria of the AAA rating it had held for decades. S&P cut Victoria two notches, from AAA to AA, in December 2020, citing the deteriorating fiscal outlook; Moody's followed, moving the state from Aaa to Aa1 in early 2021 and to Aa2 in 2022 (S&P Global Ratings, rating action, December 2020; Moody's Investors Service, rating actions, 2021-2022). Neither agency has restored the former rating since: Victoria currently sits at AA (S&P) and Aa2 (Moody's), both stable, and one notch below Fitch's AA+ (Victorian Department of Treasury and Finance, "State credit rating," current as at late 2025).
The interest bill is the fastest-moving number in the budget. The 2025-26 Budget put the annual cost of servicing Victoria's debt at around $10.6 billion, or roughly $29 million a day (approx.) — up from about $6.5 billion for 2024-25 estimated only a year earlier, as both the debt itself and prevailing interest rates rose (Victorian Budget Papers, 2024-25 and 2025-26). The Auditor-General's Office has flagged the consequence: gross debt is projected to reach around 30.3 per cent of gross state product by 2028-29, and it has repeatedly noted that measures of the state's capacity to service its debt have weakened even as the debt itself has grown (Victorian Auditor-General's Office, Auditor-General's Report on the Annual Financial Report of the State of Victoria: 2024-25).
The critique
None of that context changes what the trajectory now means for a government that has held office, in one form or another, for over a decade. Three things separate defensible pandemic-era borrowing from where Victoria stands five years later: the debt has kept growing well past the emergency that justified it, the interest cost is now crowding out other spending, and the state's own credit rating has told it so, twice, without being restored.
Start with the timing. The COVID-19 emergency that VAGO attributes $31.5 billion of Victoria's accumulated losses to had ended, by any reasonable definition, by mid-2022. Net debt did not stop rising when the pandemic did; on the government's own 2026-27 Budget figures, it has continued climbing every year since, adding tens of billions of dollars over exactly the period the Allan government has held office — driven now almost entirely by the ongoing cost of the Big Build and recurrent budget deficits, not any remaining pandemic response (Victorian Budget Papers, 2023-24 to 2026-27). The government that inherited a pandemic debt has, on the numbers, kept adding to it for reasons that have nothing to do with the pandemic.
Victoria borrowed its way through an emergency. It has not yet found a way to stop borrowing now that the emergency is over.
The interest bill makes the cost of that choice concrete. A jump from an estimated $6.5 billion in annual interest costs to around $10.6 billion (approx.) — roughly $29 million a day — in two budget cycles is money that funds no hospital bed, no teacher's salary and no train service; it is a transfer to the state's bondholders, growing automatically as debt compounds and global rates move, regardless of what any minister spends in a given year (Victorian Budget Papers, 2024-25 and 2025-26). The Parliamentary Budget Office of Victoria's own medium-term modelling shows how far that compounding can run: assuming net debt keeps growing at roughly the rate implied by recent budgets, it projected net debt reaching around $234 billion (approx.) by 2032-33 — a warning about where the trend leads if nothing changes (Parliamentary Budget Office Victoria, "Net debt in the medium term"). Every dollar of that growing bill is a dollar government must cut from services, raise through new taxes such as the COVID Debt levy, or borrow again to cover.
The rating agencies made the same point in blunter language. A downgrade is a technical assessment, by analysts who study nothing else, of a borrower's capacity to keep meeting its obligations. S&P and Moody's both concluded, independently, that Victoria's capacity had deteriorated enough by 2020-21 to justify stripping the state of the AAA rating it had held for years, and neither has restored it since — confirmed every time Victoria issues new debt at a higher interest margin than a AAA-rated borrower would pay for the equivalent bond. A lower rating is not merely a symbolic demotion; it raises the price of every dollar Victoria borrows from that point on, so the same downgrade that recorded past fiscal stress now actively adds to the interest bill driving future stress — a feedback loop the state has not yet broken.
Finally, the debt-funded model depends on the assets it built earning their keep, and that is where fairness cuts against the government hardest. Borrowing for a rail tunnel is defensible if the tunnel is delivered on budget and on time; Victoria's Big Build has instead become known, in the state's own project reporting and repeated VAGO findings, for cost and schedule blow-outs across multiple flagship projects — detailed in a separate audit on this site. Debt taken on to build assets that then cost far more than budgeted is a materially weaker position than debt taken on for assets delivered as promised, because the overruns add to the debt without adding a matching increase in the asset's value.
The damage, in numbers
Set alongside the other states, Victoria's position is not just worse in degree — it is worse in kind. Four comparisons make that concrete.
- Net debt relative to the size of the economy. Victoria's net debt is projected to sit at around 25 per cent of gross state product in 2026-27 (approx.) — comfortably the highest of any state on a net-debt basis. Queensland's net debt, cushioned by elevated coal royalty revenue, sits at around 7 per cent of its GSP over the same period (approx.); even New South Wales, measured on the broader gross-debt figure it headlines rather than net debt, peaks at around 20 per cent of GSP (approx.) — still below Victoria's narrower, and normally smaller, net-debt ratio (Victorian Budget Paper No. 2, 2026-27 Budget; Queensland Budget Paper No. 2, 2026-27 Budget; NSW Budget Papers, 2026-27, approx.).
- The interest bill's own trajectory. The 2026-27 Budget put debt-servicing costs at $8.9 billion for that year, rising to $11.8 billion by 2029-30 (approx.) — more than $32 million a day by the end of the forward estimates, and, on budget-wide figures, above 10 per cent of the state's roughly $100 billion budget (approx.) (Victorian Budget Paper No. 2, 2026-27 Budget, May 2026).
- What that buys instead. In her budget reply to Parliament, Opposition Leader Jess Wilson said that in 2026-27 "Victoria will spend more money paying its interest bill than it will on Victoria Police, Ambulance Victoria and all kindergarten services combined... and still have a billion dollars left over in change" (Victorian Parliament, Hansard, Appropriation (2026–2027) Bill 2026 debate, 12 May 2026). That is a claim made by the Coalition in reply to a Labor budget, not a neutral finding, but it is directionally consistent with independent analysis: the economic research house e61 Institute separately concluded that Victoria "already pays more in interest than it spends on police" (e61 Institute, "Victoria's fiscal predicament is worse than many realise").
- The rating has not moved either way. As at 28 October 2025, Victoria's ratings sit at AA (S&P), Aa2 (Moody's) and AA+ (Fitch) — unchanged since Moody's last cut, in May 2022, and still one to two notches below the AAA the state held before December 2020 (Victorian Department of Treasury and Finance, "State credit rating," current as at 28 October 2025).
None of this is COVID's bill any longer. The interest growth built into the 2026-27 Budget's own forward estimates runs entirely through years — 2027-28, 2028-29, 2029-30 — in which the pandemic response has long since wound down; it is compounding on debt raised for the Big Build and on deficits the government is still running, not on lockdown-era support. That is the crowding-out problem in its starkest form: a bondholder's claim on the budget that must be paid before a nurse, teacher or train driver is, growing automatically regardless of who governs, and falling hardest on a generation of Victorians now in primary school who had no vote on how it was built up.
The risk to the future
A state with less room to borrow, right when the next shock arrives
The immediate risk is arithmetic: on the Parliamentary Budget Office of Victoria's own medium-term modelling, if net debt keeps compounding at recent rates it could reach roughly $234 billion (approx.) by 2032-33, with an interest bill that would comfortably exceed $10 billion a year and keep climbing (Parliamentary Budget Office Victoria, "Net debt in the medium term"). That is money committed before a single new hospital, school or transport project is funded — a large, growing claim on the budget that no government will find easy to reverse quickly.
The deeper risk is what a downgraded, indebted state does when the next genuine emergency arrives — another pandemic, a severe bushfire season, or a recession driven from outside Victoria's control. In 2020, Victoria could borrow tens of billions at historically low rates partly because it still carried a top-tier credit rating and had not yet used up its fiscal capacity. A state already carrying the largest debt load in the country, paying a widening interest bill, and rated below where it stood in 2019, has materially less room to do the same again without risking a further downgrade that raises the cost of every dollar it borrows. The generation of Victorians now in school will inherit both the assets the Big Build leaves behind and the compounding bill for having built them this way — and unlike the pandemic that started this trajectory, the interest bill will not end when any single emergency does.