THURSDAY 12 NOVEMBER 2026 - New modelling shows the dire fiscal implications of a significant financial shock hitting the Victorian economy. The modelling shows Victoria has no financial buffer left, severely limiting its ability to respond.
The shock would see debt and interest payments rise steeply, further compounded by a ratings downgrade which would trigger even higher interest payments and further add to the state’s debt.
The IMF and Reserve Bank have issued repeated warnings of escalating global risks and the implications for more indebted governments.
In the words of the IMF*, “[t]he interaction of higher financing costs with elevated debt levels exposes a key margin of vulnerability.”
Similarly, the RBA** has noted that “elevated geopolitical tensions, intensifying technological disruption and operational risk, and growing vulnerabilities in key sovereign bond and risk asset markets, could pose serious challenges to the global financial system. If crystallised, these threats could also spill over to Australia.”
Analysis by Positive Economics Advisory for AMPLIFY reveals a 2008-style financial crisis would push Victoria’s budget to the brink.
Almost 20 years ago, Victoria went into the GFC from a position of strength with a AAA credit rating, a cash surplus of $1.5 billion and net debt of only $2.2 billion representing less than 1% of the then Victorian economy. Servicing interest required only around 1% of total revenue.
Today, Victoria has a AA rating, $7.7 billion cash deficit and net debt heading to $173.5 billion by 30 June 2027, representing 24.8% of the Victorian economy. Servicing interest now requires 7.7 per cent of total revenue.
The modelling shows a GFC-style shock would cause a material deterioration in Victoria’s fiscal position.
State revenue could fall by $6.4 billion in a single year, widening the cash deficit to $14.3 billion, with net debt rising to $180.1 billion by 30 June 2027 – equivalent to 28% of the Victorian economy. Interest costs would rise to 8.3 per cent of total revenue.
Compounding the budget impacts of a shock of this magnitude, were the Victorian government to respond on a comparable basis to the then-GFC, it would equate to $18.4 billion in additional spending to cushion the blow.
The combined effect of decreased revenue and increased spending would likely trigger a ratings downgrade, adding to Victoria’s financial stress. In this scenario, net debt could exceed 30% of the Victorian economy and interest servicing costs rise to over 10% of total revenue – a figure which ratings agencies have previously identified as a likely downgrade trigger. Taken together, net debt could climb to $226.4 billion by 2029-30 (up $29.4 billion compared with the most recent Budget forecast) and interest costs rise by a further $490 million in the same year.
Independent economist David Williams-Chen of Positive Economics Advisory said: “Our analysis shows how Victoria’s weaker fiscal position leaves it with less room to respond should it face a significant financial shock like the GFC. Around 80,000 Victorians would lose their jobs if such a shock were to occur today. But if Victoria chose to support the economy as it did after the GFC, the combination of falling revenue and higher spending could threaten a further rating downgrade, leaving the state with even less room to move.”
AMPLIFY Executive Director Martin Codina said: “Victoria's spiralling debt had stripped away the safety net the state relied on when facing prior economic shocks.
“If Victoria doesn’t get on top of its finances urgently, it will have very little room to move when the next downturn inevitably hits. At a time when financial risks are rising around the world, Victoria’s credit card is already maxed out.
“With the election less than three weeks away, whoever forms government must get the Budget back into surplus as a priority. Victorian governments can no longer afford to keep spending and borrowing and pretending it doesn’t matter.”
*IMF, World Economic Outlook, October 2026, p. xi.
** Financial Stability Review – October 2026
-- ENDS –