State of Victoria

This report does not constitute a rating action. Overview Credit context and assumptions Base-case expectations Victoria's economy should remain wealthy and resilient amid headwinds from higher interest rates. Victoria will record a narrow operating surplus in 2025 as it increases taxes and receives higher goods and services taxes. Fiscal discipline will be key to maintaining rating and containing costs of the state's large infrastructure program. The state's large infrastructure program and significant cost escalations will ensure the after capital account remains in large deficit. Australia's institutional settings for states and territories remain extremely predictable and supportive. Debt will continue to accumulate, reflecting Victoria's large infrastructure program and escalating costs. The state will maintain strong liquidity coverage. The stable outlook reflects

...Cost escalations on major infrastructure projects are delaying fiscal consolidation for the state of Victoria. We have updated our forecasts for Victoria through to fiscal 2026 (year ending June 30, 2026) following the publication of the state's midyear 2024 budget update. We expect the state's after capital account balances to be weaker than our previous forecasts, following the announcement that at least an additional A$10 billion will be needed to complete the North East Link road project. Just seven months earlier, the budget disclosed the total cost of the project at A$15.8 billion. This significant cost escalation adds to the state's debt burden, which at 215% of operating revenues in 2026 in our estimation, is the highest of any rated Australian state. We forecast Victoria will return to a cash operating surplus in 2025, following an operating deficit of 2.8% in 2024. With operating conditions returning to normal following the pandemic, the implementation of new taxes, and a potentially...

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