In this article, Adam Creighton contextualises and disseminates the IPA’s research into the economic and societal decline of Victoria since 2014.
Daniel Andrews transformed Victoria from one of Australia’s most fiscally prudent states into its most indebted, leaving behind a $235bn debt legacy that threatens the nation’s finances.
Daniel Andrews evidently governed with political skill, winning three elections. But his fiscal legacy is one of recklessness, overreach and denial – which more Victorians apparently are beginning to realise amid reports the former premier often faces abuse when he ventures out of his home. He leaves behind a state in financial peril, with few levers left to pull.
In his eulogy for former Labor premier John Cain, who died in 2019, Andrews recalled being told by his political mentor and hero “never to waste a day”.
He certainly didn’t in transforming Victoria from one of the most fiscally prudent jurisdictions in the country to one of the most indebted, with painful years of adjustment ahead for Victorians and potentially the rest of Australia, too.
Even if unclear to the average voter who naturally associates him with destructive pandemic restrictions, Andrews’ most harmful and enduring legacy is in public finance.
The figures are startling. In June 2023, a few months before Andrews retired from politics, Victoria’s net debt stood at almost $117bn, a $96bn absolute increase, or more than five times greater than what he had inherited from the Napthine government in November 2014.
In his last budget before leaving office in late 2023, Andrews projected net debt to surge to a forecast $171bn across the next four years – almost eight times the 2019 level. As it turned out, that was optimistic. Jacinta Allan, Andrews’ successor and former cabinet colleague, has pencilled in net debt of $235bn by mid-2029 using a broader estimate that includes government non-financial corporations.
Shockingly reckless increases in spending were to blame: for the 2026 financial year $107bn, up from less than $70bn before 2020 – a 55 per cent increase, vastly more than the state’s population growth of about 8 per cent across the same period and similarly ahead of inflation. Victoria no longer holds a AAA credit rating from any major agency, a significant symbolic and financial blow that underscores the state’s deteriorating credibility. At AA, Victoria is now the lowest-rated mainland state in Australia.
The deterioration didn’t begin with Covid, which the government’s apologists often cite as an excuse, but it didn’t begin on day one of the Andrews premiership either. Indeed, Andrews began his lengthy term observing the prudent examples of the earlier Bracks and Brumby Labor governments. When his veteran treasurer Tim Pallas handed down his first budget in May 2015, the state’s net debt stood at $21.5bn.
Three years later, in June 2018, Victoria’s net debt had actually declined to under $20bn.
By the time of the delayed 2020 pandemic budget – released in November that year – the government had pencilled in a tripling of net debt from $44bn to $154bn across the next four years.
That surge was not solely driven by the costs of so-called public health measures. Indeed, total state government spending on Covid-related measures, across the three financial years to June 2022, was $35.8bn, according to a fiscal retrospective published by the Treasury in 2024.
Notorious lockdowns – which lasted longer in Melbourne than in any other major city in the world – hurt revenue as they shut businesses for months on end. But it was government choices, not public health necessity, that underpinned the extraordinary budget blowout.
The politicisation of infrastructure, not Covid, explains the bulk of the cost blowout. Australia’s population was growing rapidly everywhere but only in Victoria did annual infrastructure investment explode from a steady $5bn a year across the decade to 2016 to nearly $25bn in the 2024 financial year.
Andrews launched infrastructure megaprojects on a scale never before seen in Victoria, often with little to no cost-benefit analysis. Projects routinely were announced with no federal funding secured and scant regard for how they would be paid for.
The Suburban Rail Loop, which would link outer suburbs of Melbourne in a radial fashion, was emblematic. Touted as a transformational piece of infrastructure, the SRL was announced before a business case was released and even now remains only partially funded.
Internal government documents and senior Labor figures have since admitted the hope was always to pressure Canberra into paying for a third and for land value capture to pay for another third – a strategy that appears increasingly fanciful. On her trip to China in September this year, Premier Allan had even resorted to asking Chinese investors to help make up the shortfall.
The SRL was first announced in 2018 with a mooted price tag of $50bn; some observers now expect the total cost across the three stages to surpass $200bn.
One senior Labor figure confided that they didn’t believe the government was ever serious about building the SRL when it was announced, seeing it instead as a clever political strategy to win votes in marginal seats that would ultimately be walked back.
Other projects, such as electrifying the rail lines to Melton and Werribee, bringing them into the suburban network and taking pressure off regional services, would have cost far less and brought greater benefits.
Almost incredibly in hindsight, Andrews quashed a proposal from a consortium of investors including even Labor-aligned IFM Investors to build a high-speed rail link from the airport to the city, which would have cost Victorian taxpayers $5bn and could at least be justified on the basis that Melbourne was one of the few major cities in the world without a train connecting its airport to its CBD.
The North East Link was another example. Initially budgeted at $10bn, it is now expected to cost $26bn. The West Gate Tunnel has nearly doubled in cost because of mismanagement and environmental remediation issues. Other examples include the level-crossing-removal program, originally forecast to cost $5bn, which now has exceeded $10bn, and the decision to expand the size of the National Gallery of Victoria. Even the Frankston Hospital upgrade is on track to cost over $1.1bn, more than double the forecast in 2019.
The excessive and growing influence of the CFMEU, the most powerful construction union in the state, has been a major factor in rising construction costs across Australia, up about 30 per cent in recent years.
The militant union, long accused of criminal activities, has used aggressive industrial tactics and restrictive work practices to increase its influence over the more politically moderate Australian Workers’ Union, which once competed to oversee the workforces of state government projects, helping keep a cap on costs.
Even unionised traffic controllers on major sites have reportedly been paid more than $200,000 a year – more than double what police or nurses might earn. Far from confront it, Andrews appeared to ensure the CFMEU would oversee every single major construction project in the state.
Then there was the 2026 Commonwealth Games. Marketed as a decentralised triumph for regional development, the Games became a textbook example of fiscal incompetence when it was cancelled barely more than a year after it was announced. The cancellation cost $589m, including $380m in compensation payments, without a single race run.
Cynics noted the Games, which would have helped the government win votes in marginal regional seats where many of the events were to be staged, were announced in early 2022 before the state election. Their cancellation barely more than a year later created an impression that a government floundering in debt might not have intended to host them at all.
Beyond infrastructure, Andrews presided over a bloated political machine. The premier’s private office had 86 staff in 2022, dwarfing the 51 employed by prime minister Scott Morrison at the time. Such overreach was emblematic of a broader approach to government that increasingly blurred the line between public administration and political campaigning.
Across the eight years to 2022 about 20 per cent of new jobs in Victoria were in the public sector, a share that has exploded to 70 per cent of new jobs since then, according to Institute of Public Affairs research from late 2024.
The Victorian public sector workforce grew from 277,670 in June 2015, including 37,942 in the core public service, to 382,823, including 57,345 in the public service, in June 2024. That’s growth of 38 per cent overall and a remarkable 51 per cent for the bureaucracy. Almost one in 10 workers in Victoria now works directly for the state. Combined with the private sector construction workforce dependent on government projects, a significant portion of economic activity and employment is dependent on the largesse of government.
The contrast with the relatively frugal Bracks and Brumby governments, in power from 1999 to 2010, is instructive. They were fiscal moderates who had inherited the political scars of the Cain-Kirner economic collapse in the early 1990s. John Brumby, as treasurer and later premier, delivered infrastructure such as EastLink on time and under budget, often claiming publicly it remains the cheapest toll road built in Australia.
One of the more common lines of defence used by the Andrews government and its supporters is that debt-servicing costs remain lower than under Joan Kirner’s Labor government in the early ’90s. Back then, interest payments absorbed about 15 per cent of budget outlays because the level of interest rates was so much higher. Today the equivalent figure is about 7 per cent.
But this is false assurance, given greater levels of global uncertainty that could lead to a sharp surge in interest rates, which would apply to a much larger sum of outstanding debt in nominal terms.
Another favoured deflection comes from comparisons to the ’60s, when net debt reportedly reached 57 per cent of gross state product under Liberal premier Henry Bolte. But Bolte’s debt was held mostly by revenue-generating state-owned enterprises such as the Gas and Fuel Corporation that have long since been privatised. Andrews’ debt, by contrast, is predominantly held by the general-government sector, with far fewer revenue-producing assets to service it.
And whereas Bolte’s liabilities were associated with infrastructure that generated long-term productivity gains, much of Andrews’ spending was directed towards vanity projects and the ongoing expansion of the public service, about which even veteran Labor figures have privately expressed concern.
Soaring debt was hardly a function of restraint in taxation, which soared during the Andrews administration. According to one analysis, the Andrews government introduced 63 new and increased taxes, fees and charges. Among these were the Covid debt levy, first pitched as temporary but which has become permanent, raising more than $1.1bn a year from overtaxed businesses in 2025.
Land-tax thresholds were lowered to as low as $50,000 (from a previous threshold of $300,000) and rates increased dramatically, hitting small investors and retirees.
A new mental health levy extracts another $1.1bn a year from employers in added payroll tax. Registration fees, such as for births, deaths and marriages, were hiked.
Despite these revenue increases, Victoria continues to run large operating deficits. Victorian taxpayers are now the most burdened in the nation. Total tax revenue is projected to rise by more than 22 per cent by 2029, yet the budget remains structurally in deficit. Even huge revenue windfalls during the Covid recovery period – when property markets and payrolls surged – were spent rather than saved.
The question now is whether Victoria can unwind the debt trap it has built for itself. That will require a level of political courage not yet visible from the Allan government, which has shown little appetite for reform.
Allan’s May 2025 budget was a continuation of Andrews’ legacy: optimistic assumptions, vague references to future savings and an almost religious commitment to infrastructure spending, not to mention a contempt for private business – epitomised by the Premier’s August 2025 call to mandate two days a week working from home.
Reform would require substantial cuts to a bloated public service, program cuts and significant reductions in taxation, especially on investors and small business.
The assumption has long been that economic growth will lift the state out of its fiscal hole. But there is little evidence to support that. Population growth has slowed relative to NSW and Queensland. And interest rates, while lower than in the ’90s, are no longer near zero. Debt-servicing costs are already approaching $12bn a year, on track to absorb a quarter of the state’s total annual own-source taxation revenue. That number could rise rapidly if borrowing costs increase even modestly.
The government already has sold the Land Titles Office, leased the Port of Melbourne, and privatised VicRoads licensing and registration. What remains is politically toxic or legally complex to divest.
The government has appointed Helen Silver, former head of the Department of Premier and Cabinet, to identify $3.3bn in savings. But no serious cuts to the public service have been proposed. No major programs have been wound back. And the looming 2026 state election makes any politically costly move unlikely.
Some defenders of the government point to the similar behaviour of all Australian states; Queensland’s net debt is forecast to triple, for instance. But none has gone as far, as fast or as carelessly as Victoria.
Despite the lack of genuine fiscal independence, Andrews nonetheless made the decisions to embark on the most ambitious infrastructure agenda in the nation, inflate the size of the public sector and maintain pandemic-era public spending levels into 2025 and beyond – and there is now a very real prospect that ultimately the federal government will be required to step in and bail out the state.
