Rising interest costs ripped more than $400 million out of the state budget in the first half of this financial year, with the Andrews government warning it faces the same challenges as Victorian households battling severe cost of living pressures.
Treasurer Tim Pallas said the report confirmed that the state economy was robust and resilient, with state final demand, a key measure of economic activity, up 4.1 per cent and employment up 2.2 per cent in 2022. The report said Melbourne recorded an inflation rate of 8 per cent for the year to December 2022, the highest for more than 30 years, warning that rising interest rates and a weaker global outlook had tempered the outlook for the state economy.It revealed a budget deficit of $4.2 billion over the six months to December 31. That represented a $5.8 billion improvement on the same six-month period in 2021, when the government recorded a deficit of almost $10 billion.
As a consequence, the cost of servicing the debt is expected to rise sharply. According to Treasury’s latest predictions, interest charged on Victoria’s debt will rise to about $3.9 billion this financial year, equivalent to about 4.7 per cent of total revenue.