Victoria's budget surplus has taken a $1.2 billion hit in just seven months as the Andrews government ramps up spending on public service wages.
State Treasury is now predicting a $1.7 billion surplus for the current financial year, down from $2.9 billion forecast in the April 2016 budget.
![Victorian Treasurer Tim Pallas.](/web/20161213090516im_/http://www.theage.com.au/content/dam/images/g/o/g/c/n/6/image.related.articleLeadwide.620x349.gta5wh.png/1481613816993.jpg)
Although the state's finances remain amongst the strongest in the nation, with surpluses worth $7.4 billion over the four-year budget period, the write down since the budget has been precipitous.
A huge jump in the public wage bill was partly to blame, raising questions about the structural integrity of the budget, particularly if revenue is hit by a property slump or general downturn as some economists fear.
So-called employee expenses, which soak about 42 per cent of operating expenses, are now expected to jump by 6.9 per cent in 2016-17 to $24.6 billion. After that, Treasury predicts the wages bill to rise by an average of about 3.6 per cent a year.
That represents a $600 million increase from the predictions in the April 2016 budget, which estimated a wages bill of $24 billion.
It also follows various union wage agreements since the election with paramedics, police and public servants, brokered by the Andrews government.
Treasurer Tim Pallas said the increase related to providing additional services such as teachers, police and hospital staff, which were investments to improve services.
"Whether it is accelerating police, whether it is employing people in our hospital system to deal with elective surgery needs or indeed increasing the provision of teaching staff as we build schools … this is about investing in the future," Mr Pallas said.
Mr Pallas said the figures confirmed Victoria was an "economic powerhouse of the nation" with more than 184,000 jobs created since the election.
The wage blowout comes before factoring in the impact of 2729 new frontline and specialist police announced earlier this month by the government to combat what some see as a law and order crisis.
The budget also predicted spending would leap by 20.4 per cent to $10.3 billion in 2016-17. But Treasury said the sharp increase was mainly due to a delay in the transfer of the Australian Synchrotron to the Commonwealth.
The tax haul is also expected to increase sharply, rising 8.7 per cent in 2016-17 to $21.6 billion thanks to stronger than expected stamp duty and land tax collections.
Shadow Treasurer Michael O'Brien said Premier Daniel Andrews was now the highest taxing Premier in Victoria's history.
"In only two years, the Andrews government has hauled in an extra $3.7 billion in tax revenue from Victorians," Mr O'Brien said. "The ratio of tax to gross state product sits at 5.5 per cent, up from 4.8 per cent at the last election."
"And proving once and for all that the Andrews government's first priority is to look after Labor's mates, the public sector wages bill has spiked by $1.72 billion over the forward estimates."
The figures showed net debt is expected to fall to 4.5 per cent of the state economy this year, with the $9.7 billion proceeds from the lease of the Port of Melbourne transferred to the government's books, before rising as the government lifts infrastructure spending.