Victoria keeps its AA credit rating despite warnings over project costs
Victoria’s credit rating has been maintained by one of the world’s biggest ratings agencies and its outlook deemed stable despite a risk of cost blowouts on the Suburban Rail Loop.
S&P Global said on Wednesday that it had reaffirmed Victoria’s AA rating as it expected the state’s infrastructure spending to peak this financial year and large deficits to narrow over the next two to three years.
Premier Jacinta Allan and Treasurer Jaclyn Symes arrive at a media conference in March.Credit: Penny Stephens
S&P’s outlook remained stable, meaning it believes the rating is more likely to stay at this position than to worsen.
“We expect Victoria to realise small operating surpluses over the next three years,” it said in a statement.
The ratings agency said the Allan government was taking steps to lower costs and would benefit from increased GST revenue and tax receipts. S&P also said the state would receive extra funding through its rebranded fire services levy and expanded congestion charge, which was “supporting an improving operating position from a very weak base”.
“We expect the government to show fiscal restraint ahead of the 2026 election, which should keep its operating balance in surplus,” it said. “Victoria’s economy is wealthy, well-diversified, and fundamentally sound.”
Net debt in Victoria is forecast to hit $194 billion in four years’ time.
S&P said Victoria’s commitment to control costs and slow debt growth was important to rebuild the financial protections that had been lost during the COVID-19 pandemic. But it noted that doing this had previously been difficult for the government.
“The state tends to spend all unexpected revenue gains that it receives and has struggled to implement previous savings targets including workforce reductions,” the agency said. “We believe strong governance and the quality of Victoria’s major investment decisions are important for the government’s fiscal credentials and our credit rating on the state.”
S&P warned of the risk of Suburban Rail Loop cost blowouts.Credit: Justin McManus
S&P singled out the Suburban Rail Loop, the first stage of which will cost $34.5 billion, saying there remained a danger its cost could blow out.
“We see an elevated risk this project will cost more than the government forecasts,” it said.
“This is given the size and complexities of the undertaking, concerns raised by the Victorian Auditor-General’s Office and Victorian Ombudsman in the planning and costings, and the state’s recent history of major projects going well over budget.”
The rating decision follows a visit by Treasurer Jaclyn Symes to the United States in June to discuss the government’s debt reduction strategy with ratings agencies.
The treasurer welcomed the confirmation of Victoria’s credit rating and said she remained committed to financial management.
“Because of our responsible decisions, we have made savings of $3.3 billion over the forward estimates, will achieve an operating surplus for the first time since the pandemic, and net debt is forecast to reduce relative to the size of the economy,” Symes said.
“But we know there’s more to do. That’s why we are slashing regulation and why we have commissioned the Silver review to reduce waste and to make sure government keeps investing where it matters most: the front line.”
The Silver review, an independent examination of the public sector looking at improvements and cost savings, is sitting with Symes. She has committed to releasing it when the government has finalised its response.
Shadow treasurer James Newbury said the rating announcement was “nothing more than a stay of execution”.
“The agency has warned that our state has no real plan to fund its infrastructure spending,” he said. “Our credit rating won’t be safe until Labor controls their overspending and reduces the giant debt bomb hanging over our heads.”
In its modelling of alternative scenarios, S&P said it could lower Victoria’s rating if the state’s financial management weakened.
“This could occur if its fiscal performance underperforms our forecasts, particularly leading into the 2026 state election, as demonstrated by weaker operating margins, higher infrastructure spending, or escalating project costs compared with our expectations,” it said.
An improved rating would be on the cards if the budget performed better than forecast through stronger than expected operating surpluses that would lower the expected increase in debt and interest expenses.
Victoria’s interest costs are forecast to be $10.6 billion by 2028-29.
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