Victoria's cooling property market has delivered a $5 billion blow to the state's budget forecasts less than a month before the November 28 election, with a fiscal update handed down today showing an average of $1.3 billion a year set to be shaved from tax revenue over the four-year forecast period.
The update said the downgrade was primarily driven by downgrades to land transfer duty and land tax, “reflecting a decline in property market activity amid higher interest rates and other factors.” The state is still expected to collect $9.2 billion in land transfer duty and $7.6 billion in property-related taxes in the current financial year.
The government remains on track to deliver operating surpluses, but the projected average of $300 million a year is a significant reduction from the $1 billion forecast in the May budget. Net debt is now expected to reach $197 billion in 2029-30, about $2 billion less than previously forecast, while annual interest payments are set to rise from $8.9 billion this year, or $24.3 million a day, to $11.9 billion in 2029-30.
Treasurer Colin Brooks said the slowdown was affecting the whole country, “driven by inflation, interest rates and also some changes in the federal budget settings as well.” He pointed to last financial year's $2.4 billion operating surplus as assurance the state could responsibly deliver projects.
The report said risks to the outlook “have increased in recent months and are elevated,” including federal changes to migration that could weigh on the longer-term outlook if net overseas migration declines by more than currently expected, through fewer consumers, lower education exports and a smaller pool of workers. It also warned increased fuel and material costs, some linked to the prolonged conflict in the Middle East, could cause further cost headaches for Victoria's infrastructure projects. It also confirmed nearly half a billion dollars in savings since the last budget and that a myki surcharge uncovered by the auditor-general, which Premier Ben Carroll said would be abolished, will formally cease to exist on January 1.
Martin Codina, executive director of the non-partisan campaign group Amplify, said Victoria's finances were deteriorating and economic headwinds were accelerating, and that the state urgently needed a plan to stop borrowing and pay down debt. In a separate report tabled today, the auditor-general said the current fiscal strategy remained focused on short-term outcomes, with operating cash deficits persisting, debt relatively high and long-term expenditure pressures continuing to grow.
On the Suburban Rail Loop, the Coalition has conceded it will not pause construction on the $34 billion project despite its “pause and review” policy. Shadow Attorney-General James Newbury said work would only be paused if that did not breach existing contracts, with workers still paid on stopped work: “The tools will be downed on anything that is not a breach of contract.” The government says pausing construction works would cost at least $1 billion.
Mr Brooks said the Coalition had “effectively” adopted Labor's position, calling it a complete backflip and accusing it of lying to Victorians. Mr Carroll has already cut $1 billion from the project and vowed to find another $1 billion through a “technical” review. SRL East, the first stage of the broader project planned to link Cheltenham and Box Hill in Melbourne's east, is already under way with $15 billion in contracts signed.
Analysis
Why This Matters
- The downgrade lands less than a month before the November 28 state election, putting the government's fiscal credibility at the centre of the campaign.
- Shrinking property revenue and rising interest costs narrow the room for new spending promises and deepen the challenge of debt reduction.
- The Suburban Rail Loop reversal removes a key policy difference between the major parties on the state's biggest infrastructure project.
Background
Victoria's budget leans heavily on property taxes, with land transfer duty and property-related taxes expected to bring in about $16.8 billion this financial year. Higher interest rates, changing tenancy laws and the land tax increases introduced in 2023 have been credited with driving property investors out of the state, and Premier Ben Carroll has vowed to reverse those increases if Labor is re-elected. SRL East is the first stage of a decades-long project planned to link Cheltenham and Box Hill, with tunnelling already under way.
Key Perspectives
Treasurer Colin Brooks: says the property slowdown is impacting the whole country, driven by inflation, interest rates and federal budget settings, and points to last year's $2.4 billion operating surplus.
Martin Codina (Amplify): says Victoria's finances are deteriorating and the state urgently needs a plan to stop borrowing and pay down debt.
The auditor-general: says the current fiscal strategy remains focused on short-term outcomes and recent initiatives do not go far enough to address the state's financial challenges.
The Coalition: says it will not pause Suburban Rail Loop construction if that would breach existing contracts, with workers still paid on stopped work; Labor calls that a backflip.
What to Watch
- The November 28 election result and whether Labor's pledge to reverse the 2023 land tax increases survives the revenue downgrade.
- The costings of pausing versus cancelling the Suburban Rail Loop, with the government citing at least $1 billion to stop the project.
- Whether the myki surcharge formally ceases on January 1 as confirmed in the fiscal update.
Checked
12 claims in this story checked against 1 source: 12 supported.
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- SupportedThe cooling property market has delivered a $5 billion blow to Victoria’s budget forecasts.Just In: “Cooling property market delivers $5 billion blow to Victorian budget.”
- SupportedThe surplus forecast is an average of $300 million a year, down from $1 billion in the May budget.Just In: “the expected average of $300 million a year is a significant reduction from the $1 billion forecast in the May budget.”
- SupportedThe Coalition has backtracked on pausing Suburban Rail Loop construction.Just In: “The Coalition has conceded that it will not pause construction on the contentious Suburban Rail Loop despite saying its policy is to "pause and review" the $34 billion project.”
- SupportedThe fiscal update forecasts an average $1.3 billion a year shaved from tax revenue over the four-year forecast period.Just In: “An average of $1.3 billion a year is set to be shaved from the state's tax revenue over the four-year forecast period, according to a fiscal update handed down today.”
- SupportedThe update says the downgrade reflects declining property market activity amid higher interest rates and other factors.Just In: “"This is primarily driven by downgrades to land transfer duty and land tax, reflecting a decline in property market activity amid higher interest rates and other factors," the update said.”
- SupportedBrooks said the slowdown was driven by inflation, interest rates and changes in federal budget settings.Just In: “"This is something that's impacting the whole country, driven by inflation, interest rates and also some changes in the federal budget settings as well," he said.”
- SupportedThe report says risks to Victoria’s outlook have increased and are elevated, including the possible effects of lower-than-expected net overseas migration.Just In: “The drop in property-related taxes was just one of several risks to Victoria's economic outlook that the report said "have increased in recent months and are elevated".”
- SupportedCodina said Victoria’s finances were deteriorating and the state urgently needed a plan to stop borrowing and pay down debt.Just In: “"Victoria's finances are deteriorating and economic headwinds are accelerating," said Martin Codina, executive director of the non-partisan campaign group Amplify. "Victoria urgently needs a plan to stop borrowing and pay down debt”
- SupportedThe auditor-general’s report said the fiscal strategy focuses on short-term outcomes, with cash deficits persisting, debt relatively high and long-term expenditure pressures growing.Just In: “"The current fiscal strategy remains focused on short-term outcomes. While recent operating financial results have improved, fiscal cash deficits persist, debt remains relatively high, and long-term expenditure pressures continue to grow,'' the report saide”
- SupportedThe government says pausing construction works would cost at least $1 billion.Just In: “The government has confirmed pausing construction works, including tunnel boring, would cost at least $1 billion.”
- SupportedNewbury said, “The tools will be downed on anything that is not a breach of contract.”Just In: “"The tools will be downed on anything that is not a breach of contract," he said, adding that workers would still be paid.”
- SupportedBrooks called the Coalition’s position a “complete backflip” and accused it of lying to Victorians.Just In: “"[It's] a complete backflip, they've effectively admitting they were lying to the Victorian people,'' he said.”