Interest payments on Victoria's debt have ballooned past original estimates as the Andrews government grapples with rapid rate rises.
The latest estimates from the government have interest expenses at hundreds of millions of dollars more than initially forecast last May.
The Reserve Bank of Australia began raising the cash rate in May 2022, seeing it jump from 0.1 per cent to 3.6 per cent in less than a year.
The government estimates Victoria's interest expenses will now grow to $7.318 billion by the 2025-26 financial year, with fears the figure could be even greater.
Victorian Premier Daniel Andrews said on Tuesday that his government had been put in a difficult position due to the pandemic.
"Just as your interest rates have gone up on your mortgage, the government’s interest rates have gone up on the borrowing we simply had to undertake to get us through COVID," he said.
"This is going to be a challenging budget … there’s no other way."
However, the government maintained it would deliver on promises made during the 2022 election campaign despite ballooning interest payments.
"The budget will deliver on our election commitments as we continue our strong economic recovery," a government spokesperson said.
"We'll continue to consult with unions and employees as we deliver savings identified in previous budgets, ensuring that key services are maintained."
Cuts to spending forecast to combat rising interest payments
Grattan Institute chief executive Danielle Wood said while the government revised its estimates on interest payments in October 2022, the continued rise of rates meant the figures may still be underestimated "by some margin".
"That could now add another probably two billion over the next four years to government spending on interest payments," Ms Wood said.
"In a world where we've got growing spending on interest payments, net debt climbing up, it all adds up to a pretty challenging fiscal situation for the Victorian government."
Ms Wood said while the financial impact of managing COVID was understandable, it did not explain the entire financial situation.
"We have committed to substantial new spending since COVID. At the election, the government took substantial new commitments, for capital spending, new recurrent spending," Ms Wood said.
"All of that is making the budget and the debt position more challenging than it needs to be.
"It's inevitable that the government will look to make some savings in the public sector."
Union hearing rumours of cuts
Community and Public Sector Union (CPSU) secretary Karen Batt said she had heard concerning "rumours and anecdotes from various departments" of looming public service job cuts.
She urged the Victorian government not to cut public service jobs, warning that it could lead to the community missing out on important services.
Cuts would also lead to dire personal outcomes, Ms Batt said.
"You can't just cut peoples' jobs and expect them to continue to survive with cost of living, interest rate rises, and some of them may even lose their houses," the union secretary said.
"The government should take a good hard look at some of its big infrastructure build. I'm not sure that we need to build all of it at the one time."
Opposition slams government over debt
The opposition hit out at the government over what it called "deeply concerning" news about Victoria's economy.
Shadow treasurer Brad Rowswell said the debt burden forecast for Victoria through to 2025-26 reflected poorly on Labor's economic management.
"Ten million dollars a day — each and every day — is being paid on the interest in Victoria," Mr Rowswell said.
"This makes the Cain and Kirner years seem like responsible economic managers."
Mr Rowswell said the increased financial burden would be passed onto Victorians and the state's services.
"For as long as the government continues to waste, they're going to increase taxes, they're going to increase levies, they're going to increase charges," Mr Rowswell said.
"The impact on frontline services that every Victorian relies upon are under threat."
