Victoria’s state debt is rising, with forecasts suggesting it will reach approximately $188.8 billion by 2027. For many—particularly political and economic commentators who favour smaller government and demand-side economic restraint—this figure is cause for concern. Those who align with more fiscally conservative principles worry that such debt may place a long-term burden on future generations and constrain the state’s flexibility to respond to future challenges.

On the other hand, supply-side economists and proponents of active state investment argue that this debt reflects necessary spending. From their perspective, the funds have been used to create jobs, expand essential services, and invest in infrastructure after years of underinvestment. They also see it as a buffer against unpredictable global shocks—such as the COVID-19 pandemic—which required governments to act decisively to protect public health and economic stability.

So, should Victorians be worried? The answer is: to a point.

We should be watchful, not panicked. Debt is not inherently good, or bad—it is a financial instrument. Like any tool, its value depends on how it is used, why it was incurred, and most importantly, whether it delivers a return for the broader community. The key question is whether today’s debt will result in long-term benefits that outweigh its costs.

What we need now is a measured and informed conversation—one that draws from both sides of the economic spectrum. This includes the monetarist perspectives of Hayek and Friedman, which stress fiscal discipline and the risks of inflation, and the Keynesian approach, which supports government spending to stimulate demand, especially in times of crisis or stagnation.

The reality is that this is no longer an “either/or” debate. In a complex and globalised economy, fiscal responsibility and strategic investment are not mutually exclusive. The challenge lies in striking the right balance—for today, and for the generations to come.

Why has Victoria’s debt grown so much?

In many ways, Victoria’s growing debt is a product of both emergency response and long-term ambition. First, COVID-19 changed everything. The government rightly borrowed to support jobs, keep health systems running, and cushion the economic shock. Had it failed to act, the social and financial cost would likely have been worse.

Second, major infrastructure projects—like the Suburban Rail Loop, level crossing removals, and hospital expansions—have continued. These are long-term investments aimed at preparing for a growing population, addressing congestion, and improving service delivery across the state. They create jobs in the short term and, ideally, enhance productivity in the long run.

Borrowing to invest in assets that will benefit future generations can be fiscally responsible. The question is whether the scope, timing, and cost of those investments have been well managed.

Borrowing in a time of uncertainty: Low rates, high risk

Another important consideration in this debate is how the global interest rate environment shaped Victoria’s borrowing decisions—and how quickly that environment changed. When the COVID-19 pandemic hit in early 2020, governments across Australia, including Victoria, had little choice but to borrow heavily. The economic shutdown required immediate and large-scale public spending to support businesses, protect jobs, and strengthen health systems. In response, the Reserve Bank of Australia cut interest rates to historic lows, reaching 0.10 per cent by late 2020.

At the time, borrowing seemed both necessary and unusually affordable. The former Governor of the RBA even told Australians to “borrow with confidence,” signalling that interest rates were likely to remain low until at least 2024. That guidance shaped household behaviour, property markets, and importantly, state government borrowing strategies.

The Victorian Government, already pursuing major infrastructure programs, used this low-interest environment to expand investment further—on the assumption that debt would remain cheap for years to come. This was not unique to Victoria; it reflected mainstream economic thinking across much of the developed world.

But… within 18 months, that landscape altered dramatically

Inflation surged—first globally, then domestically. Supply chains buckled, energy prices spiked, and consumer demand rebounded faster than expected. Central banks, including the RBA, were forced to reverse course rapidly, lifting rates again and again throughout 2022 and 2023.

For Victoria, this meant that early borrowings were locked in at low rates, but new and ongoing borrowing became increasingly expensive. What began as an ambitious infrastructure-led recovery strategy suddenly carried a much higher long-term cost.

This sequence of events is a reminder of how fragile economic forecasting can be, and how public finance is often at the mercy of global forces. The state’s debt strategy wasn’t reckless—it was based on the best available information at the time. But it shows why governments must build flexibility and resilience into fiscal planning.

Interest rates can rise. Conditions can change. And what looks affordable today may prove far more costly tomorrow.

What are legitimate concerns?

Three areas should concern all Victorians—regardless of political affiliation.

Debt Servicing Costs: With rising interest rates, the cost of servicing debt will increase. By the end of the decade, Victoria may spend more on interest than on entire departments like justice or transport. That’s money that could otherwise fund essential services.

Loss of Flexibility: High debt can limit a government’s ability to respond to future shocks. Whether it’s a recession, climate disaster or global crisis, Victoria needs financial headroom to adapt.

Delivery Risks: Major infrastructure comes with delivery risks—cost overruns, delays, and diminishing returns. If these projects don’t meet their stated benefits, the debt they incurred becomes harder to justify.

Critics are right to point out that infrastructure spending must be transparent, accountable, and based on clear cost-benefit analysis. Governments of all stripes must be scrutinised—not for borrowing per se, but for how borrowed funds are used.

Leading scholars such as Bent Flyvbjerg have shown that across democratic systems, infrastructure cost estimates are routinely and systematically underestimated—often by approximately 30 to 50 per cent or more. As he notes on rail investments in developed nations “actual costs turned out to be 40 percent higher than estimated costs, on average and in real terms, indicating substantial inaccuracy in cost estimates for rail”.

This isn’t always due tocost-benefit analysis, or poor modelling. In many cases, it’s a political necessity: if governments presented full, realistic costs upfront, many projects would never win public or electoral support. Politicians work term-to-term, while infrastructure returns play out over decades.

That doesn’t mean investment is unwise—but it does mean the public should be sceptical of overly optimistic forecasts, and demand independent scrutiny, ongoing reporting, and post-completion evaluations. Accountability matters as much as ambition.

The unavoidable reality: Taxes fund everything

One of the most overlooked aspects of the debt debate is taxation. We talk about spending, borrowing, and deficits—but not nearly enough about how we raise revenue. We saw the catastrophic Greek Financial Crisis, born of decades of popular tax avoidance, a massive informal (black) economy, a bloated bureaucracy, and unrestrained borrowing without the capacity to pay it backWithout taxes, modern economies collapse.

No society can function—let alone flourish—without funding its roads, transport, hospitals, schools, police, aged care, infrastructure, security and disaster response. Debt can smooth the peaks and troughs of economic cycles, but it cannot replace a sustainable, fair tax system.

Yet taxes are too often politically toxic. Indirect taxes like land tax and stamp duty are especially unpopular, even though economists widely regard land tax as among the least distorting and most efficient.

Governments must be willing to explain and justify how taxes are raised, on whom, and for what purpose. Voters deserve to know whether the tax mix is fair, whether it promotes economic participation, and whether it supports long-term fiscal sustainability.

What are the alternatives?

Some advocate for smaller government and lower spending—arguing that the state must “live within its means.” Others say now is the time to double down on investment to fuel growth, innovation, and future revenue. Both views have merit, but both come with trade-offs.

Cutting spending too aggressively risks eroding public services, slowing economic activity, and hurting vulnerable communities. On the other hand, maintaining high levels of spending without strong oversight risks waste, mismanagement, and long-term fiscal drag.

The middle ground? Spend where it matters most, on evidence-based programs and productivity-enhancing infrastructure. Review spending regularly. Reform inefficient taxes. Close loopholes. And communicate transparently with the public.

The role of the public: Scrutiny, not cynicism

Ultimately, the debate about debt is not just technical—it’s democratic. Citizens have a right to know where public money goes, how decisions are made, and whether outcomes match promises.

That means asking questions like:

Are these infrastructure projects delivering what was promised?

Is spending being independently audited?

Are tax changes fair and transparent?

Are future generations being considered, or just the next election?

Governments owe the public clear answers. But the public also has a role—to engage with the complexity of budgeting, to resist slogans, and to push for honest policy debate.

So, should we be worried?

We should be attentive, not alarmed. Victoria’s debt is higher than in the past, and the path forward requires discipline. But the sky is not falling. This is not a fiscal emergency—it’s a call for better long-term planning and more sophisticated public discussion.

Rather than ask whether debt is good or bad, we should ask: What are we borrowing for? Is it worth it? Can we afford it? And most importantly: Are we investing in a future we all want to live in?

Investment with integrity

State debt is a tool—one that can build or burden, depending on how it’s used. What matters is not how big the debt is, but whether it delivers real, lasting value to Victorians. As a community, we must demand transparency, support fairness in taxation, and ensure that future generations inherit not just the bills—but the benefits.

*Tony Anamourlis is a tax law specialist in multinational transactions, negotiating with the Commissioner of Taxation and other regulators and is a regular contributor to Neos Kosmos.