Omari Gates
Victoria has been described as Australia's bankruptcy capital, with the state carrying a projected debt of $187.8 billion. It has the nation's highest per capita net debt and the lowest credit rating. South Australia has also been criticised for its rising debt, surging interest payments and a worrying reliance on GST subsidies, with fears that the state is following Victoria's disastrous fiscal path. Western Australia has also been criticised for its handling of state debt, with its surpluses being attributed to historic luck.
| Characteristics | Values |
|---|---|
| State with the most debt | Victoria |
| Victoria's projected debt | $187.8 billion |
| Victoria's debt as % of GSP | 25% |
| Victoria's debt in 2028-29 | 24.9% |
| Interest repayment for the coming budget | $21 million/day |
| Interest repayment in three years | $29 million/day |
| South Australia's general government net debt projection for 2028-29 | $37 billion |
| South Australia's non-financial public sector net debt projection for 2028-29 | $48.5 billion |
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What You'll Learn
Victoria's projected debt of $187.8 billion
Victoria's net debt is projected to be 24.4% of GSP by June 2025, and the state is currently paying $26 million a day ($9.4 billion per year) in interest repayments. This is predicted to grow to $29 million per day within three years. The interest is growing faster than total government spending, and the state government estimates that 9% of total expenditure will go towards paying off interest within three years, up from 6.5% this year.
The state's credit rating has already been downgraded twice since 2020, and there are concerns that a further downgrade could direct state funds towards paying off higher interest on debt. A leading credit rating agency has blamed the Andrews Government's prolonged lockdowns for the state's fiscal situation, as Melbourne had the longest lockdowns in the world, with a cumulative total of 262 days of lockdown in 2020 and 2021.
The Victorian Budget 2024/25 is expected to deliver a surplus for the first time since 2019/20, with the government taking in more money than it is spending. However, the budget has received mixed reactions, with the Victorian opposition describing it as "out of control". The most significant decrease in funding is for environmental protection policies, which are projected to decline by nearly 20% in a year.
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South Australia's debt doubling by 2028-29
South Australia's debt is estimated to double to $48 billion by 2028-29, up from $31 billion in 2025. This has sparked fears that the state is on a trajectory similar to that of Victoria, which has been criticised for its handling of debt. The conservative think tank Institute of Public Affairs warned that "future generations of South Australians are being left behind by a government that is increasingly following the lead of Victoria in budget mismanagement".
In response to these concerns, the South Australian government has emphasised its focus on investing in the future, crisis management, and budgetary restraint. The state's credit rating remains strong at AA+, indicating that its debt is still manageable.
The increase in debt is attributed to the government's record infrastructure program, which will see investments totalling $27.3 billion over the period 2025-26 to 2028-29. This includes projects such as the new Women's and Children's Hospital and the South Rd tunnels.
While some have criticised the government for its handling of the state's finances, others have acknowledged that maintaining a budget surplus allows South Australia to keep its debt at a manageable level. The state has also experienced subdued consumer spending and business investment, which may have impacted its financial position.
In comparison to other states, South Australia's debt-to-revenue ratio is the second lowest in the nation. However, the state's debt is expected to continue rising, with interest repayments becoming an increasingly significant burden. By 2028-29, it is predicted that 9% of the state's total expenditure will go towards paying off interest.
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Western Australia's 50% net debt increase
Western Australia's net debt is projected to increase by 50% by 2028-29, reaching $42.5 billion. This significant jump in debt is occurring despite predictions of annual cash surpluses. Western Australia's relatively lower debt position has been attributed to its controversial GST deal, which economist Saul Eslake criticized for costing the government $44 billion more than expected.
Western Australia's debt situation stands in contrast to other states such as Victoria, which has been criticized for its handling of debt and spending. However, it is important to note that Western Australia's low debt position may not solely be due to responsible financial management but also external factors such as the controversial GST deal.
The Western Australian government has defended its financial management, citing a strong economy with a 26% growth over the past five years, outperforming the national growth of 16%. Additionally, the state boasts the lowest unemployment rate in the nation at 3.4% and has created over 300,000 jobs since 2017.
Despite the projected increase in net debt, Western Australia's debt position is expected to remain relatively stable and affordable compared to other states. The state's 2024-25 budget highlights its nation-leading economic and financial management, with a projected sixth consecutive operating surplus of $3.2 billion in 2023-24 and a $2.6 billion surplus in 2024-25.
However, critics argue that the Western Australian government's ability to maintain surpluses is due to good fortune rather than prudent financial planning. They attribute the surpluses to booming iron ore prices, which may not sustain in the future. Additionally, there are concerns about the government's ability to control debt, as evidenced by recent disclosures of massive cost increases in IT projects and issues with the Metronet railcars.
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Victoria's interest repayments rising to $29 million
Victoria's budget for the next financial year predicts that state debt will rise to record levels. The government has attributed this to increased spending on infrastructure projects and COVID relief programs in recent years. The budget also estimates that interest repayments will rise to $29 million in three years, up from $21 million a day in the current budget. This means that interest is growing faster than total government spending.
The Victorian government has predicted that the next financial year will deliver a surplus for the first time since 2019-2020. This indicates that the government will take in more money than it spends, with the surplus expected to increase in subsequent years. However, the budget has received mixed reactions from stakeholders. The Victorian opposition has labelled it as "out of control", while others have expressed concern about the state's fiscal path and the potential impact on future generations.
The increase in interest repayments is partly due to rising interest rates across Australia. The Reserve Bank has lifted its official cash rate to an 11-year high, with 10 separate interest rate rises since May 2022. This has contributed to a budget deficit and a rise in the state's net debt, which surpassed $100 billion for the first time.
The Victorian government has attempted to reduce spending by decreasing funding for environmental protection policies by nearly 20% in a year. However, spending on other areas, such as housing and community amenities, recreation, culture, and religion, has increased. The government has also invested significantly in infrastructure, with annual spending projected to be about $16 billion in 2028-2029.
The rising interest repayments and government spending have led to concerns about the potential impact on Victoria's economy and the ability to manage its debt. While some economists believe that the debt is manageable and a result of productive infrastructure investments, others criticise the government's spending habits and tax policies.
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South Australia's reliance on GST subsidies
South Australia is facing criticism for its reliance on GST subsidies and flawed redistributions. The state is expected to receive $3 billion more than it will raise in tax revenue in 2025-26. This has been criticised as incentivising the state government to avoid pro-growth economic reform, which could increase the tax base and reduce GST allocations.
South Australia's general government net debt is projected to almost double from $19.3 billion in 2023-24 to $37 billion by 2028-29. Interest payments on this debt are also set to increase by 76%. This has led to concerns that South Australia is following Victoria's disastrous fiscal path, with Victoria's state debt also predicted to rise to record levels.
The reliance on GST revenue is a broader issue in Australia, with the country's tax system being criticised as ill-equipped to support economic growth. Australia has been found to rely heavily on personal and corporate income taxes, which can reduce participation incentives for some groups. GST reform has been proposed as a way to reduce this reliance, with some arguing that a higher GST rate could lead to higher economic growth.
However, any changes to the GST rate and exemptions would require unanimous agreement from all State and Territory governments, as well as both houses of the Australian Parliament. While some argue that GST reform could be achieved without adversely impacting overall equity, others worry about the impact on households, especially those with low incomes.
South Australia's debt crisis has been attributed to the state government's failure to address critical issues and its spending on vanity projects. The state's budget has also been criticised for its lack of vision and responsiveness to the needs of its citizens.
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Frequently asked questions
As of 2025, Victoria is the Australian state with the most debt, with a projected debt of $187.8 billion.
The Victorian government has attributed the rise in debt to increased spending on infrastructure projects and COVID relief programs. However, it's important to consider the debt in relation to the size of the state's economy, known as the Gross State Product (GSP).
The Victorian government has introduced new land and property taxes to service the debt. They have also tried to reduce spending by decreasing investment in infrastructure.
There are worries that Victoria is on a disastrous fiscal path, with interest repayments on the debt rising. By 2028-2029, interest repayments are predicted to reach $29 million in three years, impacting the state's total expenditure.
Yes, South Australia is facing concerns about rising debt and a reliance on GST subsidies. There are fears that South Australia could follow Victoria's trajectory, with net debt projected to almost double by 2028-2029.
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