Cooling Property Market Wipes $5 Billion from Victorian Budget Forecasts Ahead of Election

On Friday, less than a month before Victorians vote, the state government released a fiscal update that put a number on the cooling property market: about $5 billion in lost revenue. Spread across the four-year forecast period, that works out to an average of $1.3 billion a year shaved from tax collections. The update attributed the shortfall mainly to downgrades in land transfer duty and land tax, which it linked to lower property market activity amid higher interest rates and other factors.

The budget has not tipped into deficit. The government still expects operating surpluses across the outlook period, but they now average $300 million a year, well down from the $1 billion forecast in the May budget. Net debt is slightly better than previously projected because the 2025-26 debt position came in lower than anticipated. Debt is forecast to reach $197 billion in 2029-30, about $2 billion less than earlier estimates.

Interest costs remain the heavy item. Annual interest payments are set at $8.9 billion this year, or $24.3 million a day, and rise to $11.9 billion in 2029-30, or $32.8 million a day. Martin Codina, executive director of the non-partisan campaign group Amplify, said Victoria's finances are deteriorating and economic headwinds are accelerating, and argued the state urgently needs a plan to stop borrowing and pay down debt.

The books also record nearly half a billion dollars in savings since the last budget. They confirm that a covert myki surcharge, uncovered earlier this year by the auditor-general and promised to be scrapped by Premier Ben Carroll, will formally cease on January 1.

Victoria is a tax-reliant state, and the property take is still large. It is expected to collect $9.2 billion in land transfer duty and $7.6 billion in property-related taxes in the current financial year. The report called the property downturn one of several risks to the outlook that have increased in recent months and are elevated. Another is the federal government's recently announced migration changes: if net overseas migration falls by more than expected, the report said, the state could face fewer consumers, lower education exports and a smaller pool of workers. It also warned that higher fuel and material costs, some tied to the prolonged conflict in the Middle East, could add to cost pressures on infrastructure projects.

Asked whether the government accepted responsibility for the downturn, Treasurer Colin Brooks said the whole country, particularly the eastern states, had seen a similar decline, driven by inflation, interest rates and changes to federal budget settings. He said last financial year's $2.4 billion operating surplus meant the state could responsibly deliver its projects.

Melbourne has led the cooling, with falling auction clearance rates and subdued price growth tied to weaker investment. Land tax increases announced in 2023 as part of a post-COVID budget repair plan, along with high interest rates and changed tenancy laws, have been credited with driving investors out of Victoria. Mr Carroll has promised to reverse those increases if Labor is re-elected. A separate auditor-general report tabled the same day found the state continues to record operating cash deficits and called for a longer-term approach to repair, saying the current fiscal strategy remains focused on short-term outcomes while debt stays relatively high and long-term spending pressures grow.

The Suburban Rail Loop also surfaced. The Coalition, whose stated policy is to "pause and review" the project, conceded it would not pause construction if it wins on November 28. Shadow Attorney-General James Newbury said work would stop only where doing so did not breach existing contracts, and that workers would still be paid. Contracts worth $15 billion have been signed and tunnelling is underway. The government says halting works, including tunnel boring, would cost at least $1 billion, and frontbencher Anthony Carbines put the cost of stopping the project at the same figure. Mr Brooks called the Coalition's shift a complete backflip.

Mr Carroll has already cut $1 billion from SRL East, partly by dropping overpasses, walkways and car parks at planned stations, and has promised to find another $1 billion through a technical review. The first stage of a decades-long program, it would link Cheltenham and Box Hill. With the vote four weeks away, property revenue and the rail project's cost are set to be the central budget arguments.