Auditor-general warns of $12 billion annual interest bill by 2033

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The state’s interest bill could surge to $12 billion a year by 2033, the Victorian Auditor-General’s Office has warned, arguing the government has not laid out a plan to pay down its rising debt and flagging further risks to the budget.

But the Allan government is standing by its budget strategy, including a plan to pay off pandemic spending through special levies.

Victorian Treasurer Tim Pallas.Credit: Joe Armao

In a new document released on Friday, the auditor-general’s office said Victoria’s annual financial report for the 2022-23 financial year was free from errors, but highlighted ongoing pressure from the state’s debt burden.

Net debt in Victoria is expected to hit $171.4 billion by 2027 – up from about $120 billion as of this month.

The report said debt had risen faster this year than increases to economic growth and state revenue.

“If it continues to grow at this pace, the cost of servicing debt will compound this fiscal challenge,” the report said. “The government have not laid out a plan for when and how the state will pay down existing and future debt.

“Several other emerging financial risks exist requiring close attention to manage financial sustainability.”

Among the biggest risks identified by Auditor-General Andrew Greaves was the issue of refinancing state debt, accrued when interest rates were nearly zero, at a time when the cash rate is 4.35 per cent.

Victorian Auditor-General Andrew Greaves.Credit: Victoria Auditor-General’s Office

Between 2024 and 2033, about $90.8 billion in debt will need to be refinanced at higher interest rates.

The auditor-general’s office estimated that on current figures, Victoria’s annual interest bill would increase to more than $12 billion by the final year of that range.

In 2022-23, $4 billion was needed to service Victoria’s debts – equal to about 4.7 per cent of the government’s general revenue. This is forecast to be as high as $7.98 billion in 2027.

A government spokesman said their fiscal plan was on track and the economy was strong.

“We are the only state or territory with a COVID debt repayment plan – paying back the emergency COVID credit card while we continue to grow the economy and jobs,” he said.

“Confronted with a one-in-100-year economic threat, the government acted swiftly to support businesses, so they could sustain jobs and emerge from the pandemic in the best shape possible.”

Shadow treasurer Brad Rowswell said Victorians shouldn’t believe the Allan government had a plan to pay down debt when the auditor-general’s office had provided a report arguing the opposite.

“This Labor government have been in power now for nine years, they’ve had an opportunity to arrest their incredible spending … they’ve done diddly squat,” he said.

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