Auditor-General's Report on the Annual Financial Report of the State of Victoria: 2025–26

About this report

The state manages more than half a trillion dollars in assets and spends more than $130 billion each year to fund public hospitals, schools, transport and other services Victorians rely on. The state's Annual Financial Report (the AFR) is the primary public record of how this money was raised and used.

Legislation requires the Auditor-General to independently audit the AFR and the financial reports of all state-controlled entities, so Parliament and the community can use them with confidence.

This report outlines the results of our audits of the AFR and of the 31 entities with the greatest influence on the state's results. It provides insight into what the state's financial outcomes mean, drawing out key trends and audit findings not readily apparent in the AFR alone, and gives our independent perspective on the risks that may affect the state's ability to maintain sustainable finances and services over the long term.

Audit outcomes

We provided a clear audit opinion for the 2025–26 AFR, confirming that the state's reported financial performance and position is reliable.

We also issued clear opinions on 29 of the 31 material entities’ separate financial reports, which together represent the majority of the state's transactions, balances and disclosures.

We continue to modify our audit opinion on VicTrack's financial report because we disagree with how it accounts for leased assets. We also modified our audit opinion on the National Gallery of Victoria's financial report because limitations on available information and our statutory obligations prevented us from obtaining sufficient appropriate audit evidence relating to transactions and balances affected by alleged fraud investigated by the Independent Broad-based Anti-corruption Commission.

Most state-controlled entities had progressed through the financial reporting and audit process ahead of the amended Financial Management Act 1994 transmission requirements, with 222 audit opinions issued as at 15 October 2026.

Financial outcomes

The general government sector’s (GGS) financial operating outcomes improved in 2025–26, recording its first operating surplus in 7 years. The $2.4 billion surplus is a $5.2 billion turnaround from the deficit of $2.8 billion last year.

Revenue and income drove the stronger result, increasing by $13.1 billion or 12.9 per cent, which outpaced expense growth of $7.9 billion or 7.6 per cent. Much of the improvement was due to higher Australian Government grants of $10.0 billion and taxation receipts of $2.6 billion. Expenses continued to grow across all major categories, including employee, interest, grant and other operating expenses.

One year of improved results does not remove the structural pressures on the state's finances. Operating losses of $50.7 billion over the previous 6 years have reduced the state's financial resilience.

Reported operating results also do not always provide a complete picture of the state's underlying financial performance. Accounting standards, sector classification requirements and transactions between government entities can influence how financial outcomes are reported and interpreted.

This year's surplus illustrates this point. It was impacted by $5.1 billion in specific purpose Australian Government non-recurrent capital grants, including funding for the Melbourne Airport Rail, North East Link and Suburban Rail Loop projects, which is not available to fund government operations and services. These grants were a key contributor to the reported GGS operating surplus.

The treatment of leased public transport infrastructure assets provides a further example. VicTrack, a public corporation outside the GGS, recognised approximately $2.4 billion of costs associated with public transport infrastructure assets in 2025–26. The assets are leased to the Department of Transport and Planning (DTP) within the GGS under concessionary lease arrangements. The current accounting treatment relating to our modification of VicTrack’s financial report, together with the government electing to measure these leases at cost rather than fair value, affects where the costs of using public transport infrastructure are recognised in the AFR. This means the full cost of operating public transport infrastructure is not reflected in the GGS operating result.

The GGS continued to record a fiscal cash deficit this year of $5.2 billion. While this is also an improvement on the prior year's deficit of $12.8 billion, it is consistent with the past 10 years. It means the government again did not generate sufficient cash flows from operations to fund its capital program and remains reliant on debt. The 2026–27 Budget forecasts this trend to continue, with fiscal cash deficits in every year to 2029–30, each larger than this year's, accumulating to $30.5 billion over the next 4 years.

GGS gross debt increased by $15.4 billion, from $187.9 billion at 30 June 2025 to $203.3 billion at 30 June 2026. It is forecast to reach $244.9 billion by 30 June 2030. Net debt continues to grow, although at a slower rate relative to economic activity. This stabilisation reflects economic growth, particularly the effects of inflation, and financial assets that offset debt, rather than the state paying down debt. It therefore does not, on its own, demonstrate improved debt sustainability, particularly as interest costs continue to consume a growing share of revenue.

Risks to fiscal sustainability

The current fiscal strategy remains focused on short-term outcomes. While recent operating financial results have improved, fiscal cash deficits persist, debt remains relatively high, and longterm expenditure pressures continue to grow. Headline results continue to be influenced by non-recurring items rather than structural improvements in revenue or expenditure.

Recent government initiatives do not go far enough to address the state’s financial challenges or strengthen long-term financial resilience. For example, $12.8 billion in savings initiatives announced in state budgets from 2017–18 to 2025–26 has largely supported new or expanded expenditure rather than rebuilding fiscal capacity or reducing debt.

The state also faces significant materialising and emerging risks, 11 of which we highlight in this report. Some are already evident in current financial outcomes and budget settings, while others may have a greater impact over the medium to long term. Effective management of these risks is important to fiscal repair and long-term sustainability.

The Independent Review of the Victorian Public Service released in late 2025 recommended improvements to fiscal management and strategy. However, these recommendations remain unactioned, limiting the review’s implementation to some short-term savings and entity reforms.

Likewise, our recommendations over the past 4 years to strengthen fiscal discipline, fiscal sustainability, debt management, long-term planning and transparency remain largely unactioned.

Common problems with financial reporting and controls

The Department of Treasury and Finance (DTF) implemented effective internal controls to support the preparation of the AFR.

Material entities generally maintained adequate controls and accounting records to support reliable financial reporting. However, recurring weaknesses in governance, asset management, outsourced-service oversight and IT controls continued to expose entities to operational, reporting, fraud and information security risks. Longstanding IT control weaknesses remain unresolved, and some entities require greater assurance over outsourced providers and access to information needed to meet accountability and reporting obligations.

What the AFR is and what it reports

The Department of Treasury and Finance (DTF) prepares the AFR, the state's consolidated financial report. Formally titled the Financial Report (Incorporating Quarterly Financial Report No. 4), it presents the State of Victoria's financial results each year.

It consolidates financial information from over 270 state-controlled entities across the 3 sectors of government, shown in Figure 1.

The AFR also reports how money was spent from the public account, as required by the Financial Management Act 1994.

Who prepares and audits the AFR

DTF and VAGO have distinct roles in the preparation and audit of the AFR.

DTF prepares the AFR and is accountable for its content. VAGO independently audits the AFR and reports the results to Parliament. VAGO does not prepare the AFR or determine the financial results reported in it.

Why material entities are central to our audit of the AFR

The AFR consolidates financial information from more than 270 state-controlled entities. While we audit all of these entities, their contributions to the state's financial results and position vary significantly. For the purposes of the AFR audit, we focus our audit effort on the entities with the greatest influence on the AFR.

In 2025–26, we identified 31 material entities. Together, they accounted for most of the financial transactions, balances and disclosures reported in the AFR.

The audit outcomes of these entities form a significant part of our audit of the AFR because their financial results are consolidated into the state's financial report. This report therefore focuses on the audit outcomes for the AFR and these 31 material entities.

What the AFR does not include

The AFR includes only entities the state controls for financial reporting purposes. The public sector entities outlined below are excluded from the AFR but are subject to separate financial report audits by VAGO.

Reporting our insights on the state's finances

Our audit opinion on the AFR provides assurance on whether it is reliable. This report goes further by providing insight into what the state's financial outcomes mean, drawing out key trends and audit findings not readily apparent from the AFR alone. It also provides our independent perspective on the risks that may affect the state’s ability to maintain sustainable finances and services over the long term.

We prepare this report under section 57(1) of the Audit Act 1994. The Act also allows us to comment on and make recommendations about the effective and efficient management of public resources and the maintenance of proper accounts and records.

Further information

See Appendix B for more information about our audit approach, independence and our costs.

Audit opinion on the AFR

We provided a clear audit opinion on the 2025–26 AFR. Our clear opinion provides reasonable assurance that the financial performance and position of the State of Victoria, and within it the general government sector (GGS), as reported in the AFR is free from material error.

Key audit matters

Key audit matters are the matters we identify as most significant to an audit. Including them in an audit report provides greater transparency about the audit and the areas on which we focused. A key audit matter does not mean we identified an error or qualified our audit opinion.

We include such matters in our AFR audit report and in the audit reports of material entities where we judge it necessary.

We reported the following key audit matters in the AFR audit report for 2025–26:

• financial reporting risks arising from progress towards key financial targets
• recognition of transport assets
• valuation of non-financial physical assets
• recognition and measurement of service concession assets, liabilities and commitments
• valuation of defined benefit superannuation liability
• valuation of provision for insurance claims.

A copy of our audit report is in Appendix C.

Material entity audit outcomes

When we issued our clear opinion on the AFR, we had issued clear audit opinions on the financial reports of 26 of the 31 material entities.

Our audits of the Department of Government Services (DGS), Greater Western Water (GWW), Department of Jobs, Skills, Industry and Regions (DJSIR) and NGV remained in progress due to delays in resolving contentious audit and accounting issues.

We subsequently issued 3 clear opinions for DGS, DJSIR and GWW after the AFR.

We issued modified opinions on the financial reports of VicTrack and NGV.

These delays and modified opinions did not affect our opinion on the AFR because:

• for VicTrack, DTF corrected the matter through a central consolidation adjustment
• for DJSIR, NGV, GWW and DGS, the individual matters were not material to the AFR. We had also completed our audit of the balances and transactions material to the AFR before we issued our opinion on the AFR.

Appendix D lists the material entities and summarises their financial results and our audit opinions.

The delays in issuing these audit opinions, and the reasons for the modified opinions are discussed below.

Delayed financial report certification of DJSIR

DJSIR has a service concession arrangement with BioNTech for an mRNA research and manufacturing facility. A complex financial reporting matter relating to this arrangement delayed certification of DJSIR's financial report and completion of our audit.

The matter was subsequently resolved and we issued a clear audit opinion on 20 October 2026.

Qualified audit opinion of NGV's financial report

We issued a qualified opinion on NGV's financial report, including the comparative information.

As disclosed in note 8.6 of NGV's financial report, an IBAC investigation into alleged theft and misconduct in public office by a former employee has concluded. The alleged conduct occurred between September 2019 and September 2025, and related court proceedings are ongoing.

These circumstances limited the information available to us, and our statutory obligations limited the audit procedures we could perform in response to the identified fraud risks. We were therefore unable to obtain sufficient appropriate audit evidence over supplies and services expenses, payables and other assets affected by the alleged fraud.

We could not quantify the potential financial effects or determine whether adjustments were required to the current year or comparative amounts for these transactions and balances, or to the accumulated surplus.

The audit opinion was issued on 19 October 2026.

Delayed financial report certification of GWW

Remediation activities relating to the May 2024 billing system transition continued throughout 2025–26.

The financial reporting impacts of those issues, including those arising from the enforceable undertaking entered into by GWW with the Essential Services Commission in October 2025, required additional audit effort and delayed completion of the audit.

These matters were subsequently resolved, and we issued a clear audit opinion on 16 October 2026.

Delayed audit process – DGS

The DGS audit opinion was issued on 2 October 2026, the day after the AFR, due to delays in obtaining audit evidence following DGS’s payroll system migration. We discuss this further in Part 5.

Our adverse opinion for VicTrack

We have continued to issue an adverse opinion on VicTrack's financial report. This means that its financial report does not accurately reflect its financial performance and position.

VicTrack has continued to account for assets it leases to DTP as operating leases.

We disagree. VicTrack's incorrect accounting is material and pervasive to its financial report.

Our view is that DTP is responsible for the operation of the transport network as a whole and that in this regard, DTP:

• directs the use of transport assets by setting the timetables and operating conditions for all modes of transport with no significant input from VicTrack
• substantially holds the risks and rewards of ownership of the operational transport assets.

This is why we formed the view that it is a finance lease. VicTrack continues to incorrectly recognise these leased assets and associated transactions that should be accounted for by DTP.

In the AFR, DTF made a central adjustment on consolidation to correct this inconsistent accounting treatment. This means the fair value of the underlying assets and associated transactions were correctly reinstated at the State of Victoria level.

Current accounting treatment continues to affect reported GGS financial outcomes

DTP delivers public transport services in Victoria through contracted service providers. VicTrack, a public non-financial corporation outside the GGS, is the legal owner of most of Victoria's transport infrastructure assets.

DTP constructs these assets using funds sourced from DTF through GGS borrowings. Once completed, ownership transfers to VicTrack, which acts as the custodian of the state's transport assets.

VicTrack records these assets and their depreciation expenses in its financial report. Annual depreciation on these assets was approximately $2.4 billion in 2025–26.

DTP leases these assets back from VicTrack for a nominal amount, typically between $1 and $10 per year (a concessionary lease), and then subleases them to third-party service providers that operate transport services.

DTP does not recognise any costs associated with the assets. However, DTP records its share of farebox revenue from subleasing the assets, which totalled $319 million in 2026. This was lower than in previous years due to the state’s free and half-price public transport initiatives.

Figure 2 shows the lease arrangement between DTP and VicTrack.

Figure 2: VicTrack lease arrangement with DTP

Source: VAGO.

Under the Australian Accounting Standards, entities must recognise lease arrangements on their balance sheets, recording a right-of-use asset and a corresponding liability that reflects lease payments over the lease term. For not-for-profit public sector lessees, AASB 16 Leases initially allowed below-market leased assets (concessionary leases), such as the VicTrack–DTP arrangement, to be measured at cost rather than fair value, through a relief mechanism. Ordinarily, leased assets would be measured at fair value.

In August 2026, the AASB made this concessionary lease relief an ongoing accounting policy choice for financial report preparers, rather than an interim measure. As a result, the state can properly continue to measure concessionary right-of-use assets either at cost or fair value. It has elected to use the cost method.

This method results in the assets being recorded by DTP at nominal values with no amortisation cost recognised over the lease term. The GGS operating result therefore does not reflect the economic cost of using these transport assets in delivering public services.

If the government had elected to measure the leased assets at fair value, based on the current depreciation expense recognised by VicTrack on the underlying operational transport assets, the annual impact on the GGS result could be broadly consistent with the order of magnitude of the current depreciation expense of approximately $2.4 billion.

Part 3 further examines how this accounting treatment affects reported and forecast GGS financial outcomes.

Why reporting quality matters

Reliable financial reporting supports accountability, informed decision-making and confidence in the state’s finances. It relies on entities maintaining effective controls, capable finance functions, accurate records, and appropriate accounting treatments throughout the year.

Errors identified late in the reporting process, or left uncorrected, can indicate weaknesses in the processes, controls and judgements that underpin financial reporting.

Our audits of the material entities identified several misstatements above the thresholds used for correcting and communicating audit differences.

Prior year error of $1 billion at DTP

During 2025–26, DTP identified that minor capital works of rail infrastructure and operational control, and management system assets delivered by train and tram operators between 2020–21 and 2024–25 had been recorded as assets under construction. DTP did not have sufficient information about these assets to transfer them to VicTrack and recognise them as completed assets. DTP had to therefore remove the $1 billion from the asset balances and recognise the expenditure as payments to the transport service operators.

Of this amount, $862 million related to periods before 2024–25 and $150 million related to 2024–25. The state restated its prior year information in the financial report, reducing asset balances at 30 June 2025 by $1 billion and the 2024–25 net result by $150 million.

This correction reflects longstanding weaknesses in asset record keeping and accounting for transport assets. We have previously reported that entities lacked sufficient information to support the recognition of major project assets, including assets owned by VicTrack.

Adjusted and unadjusted financial report audit differences

The table below summarises audit differences of more than $25 million identified across several material entities and the AFR, including the range of individual differences.

All adjusted audit differences were corrected by management before the relevant financial reports were finalised.

Unadjusted audit differences remained in the financial reports. However, individually and in aggregate, they were not material to the relevant financial reports, or the AFR. Appendix G summarises the individual unadjusted audit differences of more than $25 million.

Legislated timelines

DTF and the state-controlled entities must complete financial reporting tasks by the dates set in the Financial Management Act 1994. Entities are required to provide financial reports to us within 8 weeks of the balance date (30 June), which is 25 August.

The Audit Act 1994 requires us to provide the entity with an audit opinion within 4 weeks of receiving its financial report. That means we should provide audit opinions by 22 September.

To meet their legislative timelines, DTF and VAGO rely on entities providing complete and accurate financial information on time. Delays impact the timeliness of our audit opinions as well as the preparation and tabling of the material entities' financial reports and the AFR in Parliament.

Timeliness against agreed timelines with audit

We agree key dates with each material entity, including the submission dates for their draft financial reports, so we can schedule audit visits and allocate audit resources effectively. When material entities submit required information – such as audit requests and draft financial reports – by these agreed dates, audits progress smoothly as planned.

Material entities provided draft financial reports an average 8 days later than the agreed date.

Six material entities submitted their draft financial reports early, 3 on time and 22 late.

Timeliness against statutory requirements

Figure 4 shows how many weeks after 30 June material entities took to certify their financial reports.

In 2026, the median time was similar to recent years. Most material entities certified their financial reports by 22 September, with 24 of 31 doing so by this date. Some of these delays are discussed earlier in this report.

Figure 4: Timeliness of financial report certifications from 2019 to 2026

Source: VAGO.

This year, one material entity certified its financial report and a further 29 provided draft financial reports by the Financial Management Act 1994 due date of 25 August.

We were then able to provide:

• 21 material entities with an audit opinion by 22 September
• audit opinions for a further 6 material entities before issuing our audit opinion on the AFR, with one additional audit opinion issued the following day
• 3 material entity financial reports remained uncertified and did not have audit opinions when the AFR was finalised.

Audit report timeliness

VAGO publishes a dashboard to support transparency and accountability by reporting against whether we have met the statutory deadline for issuing audit opinions under the Audit Act 1994.

The dashboard can be found at www.audit.vic.gov.au/how-we-are-accountable.

Annual reports are important accountability documents

Annual reports of public sector entities promote transparency and accountability. These reports provide an overview of an entity's activities, financial performance and use of public resources and include the audited financial report.

As required by the Financial Management Act 1994 (the Act), state-controlled entities must, by 31 October, either table or transmit their annual reports, or ensure that the relevant Minister notifies Parliament of receipt. The applicable requirement depends on the entity’s expenditure level, as determined by the threshold set out in the Act.

If they do not meet this date, responsible ministers must:

• report this to Parliament, along with the reasons for the delay
• ensure the annual reports are tabled as soon as possible after they are received.

We have an obligation under the Australian Auditing Standards to consider whether information in annual reports is consistent with the audited financial report. If we identify an inconsistency, it may indicate a material misstatement in either the financial report or financial information of the annual report. This consistency check is done before we release our audit opinion only if the annual report is made available by the entity.

Amendments to the Financial Management Act 1994

The August 2025 amendments to the Act changed how annual reports are provided to Parliament. Section 46(1) of the Act requires annual reports to be transmitted after 15 October, following the publication of the AFR. Reports may now be transmitted on non-sitting days between 15 and 31 October.

As a result, many entities that complete their financial reporting and audits before this date must wait until the transmission window opens before providing their annual report to Parliament.

Ministers must disclose when they received each report and cannot direct entities to submit reports on a particular date.

Where an entity’s expenses and obligations do not exceed $5 million, the Minister needs to notify Parliament of receipt and transmit the report to Parliament only if a member requests it.

Financial reporting and audit status ahead of transmission window

We prepared this report before 31 October 2026. As a result, we cannot assess the timeliness of annual report transmission as we have done in prior years.

As at 15 October 2026, of the approximately 270 state-controlled entities:

• 222 audit opinions had been issued on the financial reports of state-controlled entities
• 2 state-controlled entities had certified their financial reports and were awaiting audit opinions.

The remaining state-controlled entities had not yet provided their financial reports for audit, or their audits were in progress.

Why we focus on the GGS

We analyse the financial performance of the GGS because it is central to fiscal policy, manages revenue and expenditure and the state’s overall financial outcomes. The government uses the GGS as its primary measure for fiscal targets and budget management.

The GGS drives most movements in the state's consolidated financial outcomes. However, some factors affecting GGS outcomes sit outside the sector. Where relevant, we highlight these factors and their impact.

Outcomes against the government's financial targets

Each year, the government sets short-term financial measures and targets for the GGS through the state Budget. These targets sit within its broader fiscal strategy and support its long-term financial management objectives.

Figure 5 compares the government's key GGS financial measures and targets with the Budget and actual results for 2024–25 and 2025–26.

Figure 5: GGS key financial targets and results

Notes: ¹These are the net cashflows from operating activities as disclosed in the consolidated cashflow statement.
²Net debt is gross debt less liquid financial assets. It is the sum of deposits held, advances received, government securities, loans and other borrowings less the sum of cash and deposits, advances paid, investments, loans and placements.
Source: VAGO, based on data from the state Budget and the AFR.

The GGS exceeded budget on both its net operating balance and net operating cash balance. Higher Australian Government grants, taxation revenue and sales of goods and services supported both results.

Net debt increased by $9.8 billion to fund the capital infrastructure program.

Net debt measures borrowings after deducting the government's liquid financial assets, such as cash and investments. As a result, it is affected by both debt levels and the value of financial assets held by the government.

Measured against the size of the economy, using gross state product (GSP), net debt rose slightly on last year but finished below budget. This outcome does not mean the government borrowed less. In fact, debt increased. The lower-than-budget result reflects the government holding more cash and investments than forecast, including:

• cash, with a stronger operating cash surplus that was $3.6 billion higher than budget
• investments in the Victorian Future Fund, Victorian Social Housing Growth Fund and Victorian Homebuyer Fund, which reached a combined balance of $16.3 billion at 30 June 2026, compared with $15.0 billion forecast
• $1.0 billion of investments backing domestic building insurance liabilities reported by the Building and Plumbing Commission. These investments reduced net debt even though related insurance liabilities are excluded from the measure.

Interest expenses rose by $1.1 billion to $7.9 billion as debt increased and existing debt was refinanced at higher rates. The interest expense continued to grow faster than revenue, increasing the share of revenue required to pay interest from 6.7 per cent last year to 6.9 per cent.

The government contributed $0.5 billion to the State Superannuation Fund in 2025–26, in line with the Budget.

We analyse these outcomes in more detail below.

What the operating result shows and why it is important

The operating result shows the difference between what the GGS earns (revenue and income) and what it spends (expenses) during a financial year. It is also known as the net operating balance.

This result is a key measure of the GGS's financial performance and fiscal sustainability. A positive operating result over time shows that the GGS generates revenue and income and manages its expenses well enough to produce surplus funds that can support future needs.

The GGS reported a net operating surplus of $2.4 billion, the first surplus in 7 years.

Figure 6 compares this result with $50.7 billion in operating losses over the previous 6 years. Adding the $6.8 billion in surpluses forecast over the next 4 years, the GGS is estimated to recover $9.2 billion, less than one fifth of the losses incurred since 2019–20.

The forecast surpluses are also smaller than this year's result. On current projections, 2025–26 is the strongest year of the period, with the surplus falling in 2026–27 before recovering modestly over the remaining forward estimates.

Restoring the financial resilience lost over recent years will require substantially larger surpluses than those currently forecast.

Figure 6: GGS operating results

Source: VAGO, based on the AFR and state Budget.

The return to surplus is an important step in the government's fiscal strategy. However, one year of stronger results does not reverse the structural weaknesses in the state's financial position. The fiscal pressures built up over recent years remain, and emerging risks threaten the state's fiscal sustainability. We examine these in Part 4.

How the GGS returned to an operating surplus

Figure 7 shows the key contributors to this year's surplus compared with last year.

Figure 7: Changes in the GGS net operating result from 2025 to 2026

Note: Numbers may not add up due to rounding.
Source: VAGO, based on the AFR.

The GGS returned to surplus in 2025–26 because revenue and income grew by 12.9 per cent, compared with expense growth of 7.6 per cent. Expenses still increased across every major category.

The surplus reflects stronger revenue and income growth, not lower spending.

Revenue and income rose by $13.1 billion to $114.5 billion. The main drivers were higher:

• taxation income, up $2.6 billion. This included increases of $1.5 billion in land transfer duty, $0.6 billion in payroll tax and $0.5 billion from the Emergency Services Volunteer Fund which replaced the Fire Services Property Levy on 1 July 2025. Wage growth, more property transactions and a broader tax base drove these increases.
• Australian Government grants, up $10.0 billion. This included:
  • $4.3 billion from growth in the national GST pool and Victoria’s larger share of it
  • $3.5 billion increase in capital grants for projects including the North East Link, Melbourne Airport Rail and Suburban Rail Loop.

Expenses rose by $7.9 billion from $104.2 billion to $112.1 billion in 2025–26. The main drivers were higher:

• employee expenses, up $1.9 billion due to more staff and higher wages
• interest expenses, up $1.1 billion as the government took on new borrowings and refinanced existing debt at higher interest rates
• other operating expenses, up $2.2 billion due to higher prices and increased demand driven by population growth and high inflation
• grant expenses, up by $1.7 billion due to additional grants to community organisations and higher Australian Government grants passed on to other entities.

Capital grants had a significant effect on the reported GGS operating result

The GGS moved from a $2.8 billion operating deficit last year to a $2.4 billion surplus this year, a turnaround of $5.2 billion.

Australian Government capital grants made a significant contribution to this improvement. They contributed $5.1 billion to the GGS operating result in 2025–26. These grants are recognised as income in the operating result but are tied to specific infrastructure projects, including the Melbourne Airport Rail, North East Link and Suburban Rail Loop. While they improve the reported operating result, they are not available to meet GGS operating costs.

These funding sources are not unique to 2025–26. The government forecasts a further $13.5 billion in Australian Government capital grants over the 4 years to 30 June 2030. These amounts directly support the operating surpluses it forecasts over that period.

Figure 8 shows actual and forecast Australian Government capital grants from 2017–18 to 2029–30.

Figure 8: Australian Government capital grants

Source: VAGO, based on the AFR and state Budget.

We present analysis of the effect of material Australian Government capital grant income on the GGS operating results to better reflect the state's underlying operating performance. The analysis removes material Australian Government capital grant income to illustrate the extent to which these grants influence the reported operating results. This provides a clearer view of whether the recurrent revenue and income are enough to fund the ongoing cost of government services.

As Figure 9 shows, the reported net operating balance improved from a $2.8 billion deficit in 2024–25 to a $2.4 billion surplus in 2025–26. However, Australian Government capital grant income had a significant effect on the GGS operating result, exceeding the reported surplus. Figure 9 illustrates the extent to which the reported and forecast operating results are influenced by these grants, with a similar trend expected throughout the forward estimates period.

This suggests the state has not yet closed the structural gap between the recurring revenue and income it generates and the recurring cost of delivering public services.

Figure 9: Effect of Australian Government capital funding on the GGS operating result

Source: VAGO, based on the AFR and state Budget.

This analysis is relevant because the government develops its fiscal strategy and assesses financial performance using GGS outcomes. Understanding the effect of significant non-recurring capital grants provides context when interpreting reported results, fiscal targets and fiscal sustainability.

We therefore encourage the government to consider the effect of non-recurring items, where appropriate, when setting, assessing and reporting on fiscal targets. Doing so would support a more informed assessment of the reported financial outcomes and progress being made toward fiscal sustainability.

Current accounting treatment affects how transport infrastructure asset costs are reflected in GGS results

As discussed in Part 2, we have modified our audit opinion on VicTrack's financial report since 2019–20 because, in our view, operational transport assets held by VicTrack, a public corporation outside the GGS, are controlled by DTP and should therefore be recognised by DTP within the GGS.

Under the current accounting treatment, VicTrack continues to recognise these assets and the associated transactions. As a result, the costs associated with the use of these assets are recognised outside the GGS operating results. While DTF corrects this treatment through a consolidation adjustment when preparing the state's AFR, ensuring the assets and transactions are correctly recognised at the whole-of-state level, the treatment continues to have a significant effect on GGS financial outcomes.

One of the most significant costs affected is depreciation. Depreciation reflects the consumption of an asset’s service potential. It is therefore both a core cost of delivering public services and an indicator of the funding needed to renew and replace assets.

Depreciation attributable to these operational transport assets increased from approximately $0.6 billion in 2019–20 to $2.4 billion in 2025–26 and is estimated to remain above $2.2 billion a year over the 4 years to 2029–30. The increase reflects growth in the transport asset base from asset valuations and major capital projects such as the Metro Tunnel.

We have raised this issue for 7 consecutive years, and it remains unresolved.

Figure 10 shows the effects of this depreciation on the GGS financial outcomes.

Figure 10: GGS net operating results and estimated impact of VicTrack depreciation

Source: VAGO, based on the AFR, state Budget and VicTrack.

We encourage the government and affected entities to consider whether the current accounting treatment provides users with a transparent understanding of the economic substance of the arrangement and its effect on GGS outcomes.

The operating cash surplus and why it is important

The operating cash surplus measures the cash the government has left over in a financial year after paying for its operations and running expenses, such as employee salaries, supplier expenses, interest costs and utilities.

The GGS achieved an operating cash surplus of $9.8 billion in 2025–26, exceeding budget by $3.6 billion and the prior year's result by $6.7 billion. Consistent with the operating result, stronger taxation revenue and Australian Government grants drove the improvement.

Of the reported $9.8 billion operating cash surplus, $5.1 billion came from Australian Government capital grants and $1.1 billion came from receipts from public corporations including levies, income tax equivalent payments and dividends. Receipts drawn from public corporations are generated outside the GGS and reduce the financial resources retained by those entities.

Together, these amounts contributed $6.2 billion, or almost two-thirds, of the reported operating cash surplus this year without being generated from the GGS's operating activities.

This pattern is expected to continue. The GGS expects to report cumulative operating cash surpluses of $25.8 billion over the next 4 years to 2029–30. However, $18.8 billion, or nearly 73 per cent, is expected to come from Australian Government capital grants of $13.5 billion and revenue drawn from public corporations of $5.3 billion.

As a result, only $7.0 billion of the forecast $25.8 billion operating cash surplus over the next 4 years is expected to be generated from GGS's underlying operating activities. The remaining $18.8 billion relies on Australian Government capital funding and revenue drawn from public corporations rather than cash generated from GGS's own operations.

Figure 11 shows the GGS operating cash outcomes since 2017–18, together with the Budget projection and forecast results from 2026–27 to 2029–30.

Figure 11: Operating cash surplus/deficit

Source: VAGO, based on the AFR and state Budget.

Fiscal cash surplus and why it is important

A fiscal cash surplus means the GGS's cash inflows from operations exceed its recurrent and capital outlays.

A fiscal cash surplus is a sign of good financial health because it means there is available cash for the government to use to invest in public services, pay down debt or build financial resilience for future uncertainties. A fiscal cash deficit means the government must borrow to cover investments in infrastructure assets used to provide public services.

While the operating cash surplus is a positive result, it does not mean the GGS has enough cash to fund its capital program without further borrowing.

The government is still planning a significant capital investment program. The gap between operating cash surpluses and planned capital spending means fiscal cash deficits are expected to continue, requiring ongoing reliance on debt.

Fiscal cash deficits continued for a tenth year and are forecast to persist

In 2025–26, the GGS recorded a fiscal cash deficit of $5.2 billion, an improvement on the prior year's deficit of $12.8 billion.

Figure 12 shows the GGS fiscal cash result from 2017–18 in addition to the projected outcome for the Budget and the forecast years from 2026–27 to 2029–30.

The GGS has recorded a fiscal cash deficit in each of the past 10 years. This prolonged period of fiscal deficits highlights why the government has relied heavily on borrowings to fund its capital investments, as capital funding requirements have exceeded the funding available from operations.

The 2026–27 Budget forecasts this trend to continue, with fiscal cash deficits in every year to 2029–30, each larger than this year's, accumulating to $30.5 billion over the 4 years. As a result, the government will likely continue to rely on debt to fund capital investment.

Figure 12: Fiscal cash deficit

Source: VAGO, based on the AFR and state Budget.

Borrowing to fund long-lived infrastructure assets can be appropriate. It spreads the cost across the generations that benefit from it.

However, persistent fiscal cash deficits show the government's capital program is not sufficiently funded from the cash its operations generate. The state is borrowing the difference. This matters because each year of deficit adds to debt and interest costs. As interest costs rise, they commit a higher amount of future revenue to servicing debt rather than delivering services or funding new initiatives. The state's ability to respond to future needs and shocks also narrows.

Fiscal cash deficits are therefore a key indicator of pressure on the state's long-term fiscal sustainability. We discuss this further in Part 4.

GGS gross debt grew with the trend set to continue

GGS gross debt comprises interest-bearing liabilities, mainly domestic borrowings raised through Treasury Corporation of Victoria (TCV). It also includes other less significant interest-bearing liabilities including lease liabilities and service concession arrangement liabilities.

GGS gross debt increased by $15.4 billion from $187.9 billion at 30 June 2025 to $203.3 billion at 30 June 2026. It is forecast to reach $244.9 billion by 30 June 2030.

Debt is stabilising as a share of GSP because nominal GSP is growing, not because debt is falling

Stabilising net debt as a share of GSP is a key financial measure for the government, and the government considers it important when assessing debt sustainability. This ratio compares the size of GGS debt with the size of the state’s economy.

The government set a 2025–26 target of net debt at 25.1 per cent of GSP as part of its short-term financial measures. It achieved 24.0 per cent. The government forecasts that net debt will stabilise and then begin to decline as a share of the economy by the end of the forward estimates period.

A rising ratio means state debt is growing faster than the economy, which increases pressure on debt servicing costs and makes repayment more difficult. A declining ratio means debt may still be increasing in dollar terms, but at a slower rate than economic growth.

Figure 13 shows nominal net debt and net debt as a share of GSP. Although debt is forecast to stabilise and marginally decline relative to GSP, nominal net debt is continuing to increase, from $160.7 billion at 30 June 2026 to $199.3 billion by 30 June 2030.

Figure 13: Net debt and net debt to GSP

Source: VAGO, based on the AFR and state Budget.

Net debt deducts cash and other financial assets from gross debt. While these financial assets can generate income, gross debt shows the total debt on which the state pays interest. Some financial assets deducted in calculating net debt are also held for specific purposes or against other liabilities and are not available to repay borrowings. Gross debt therefore provides a clearer view of the state’s total debt burden, which we discuss further in Part 4.

How the government expects to stabilise debt

Comparing debt with GSP shows how large the state's debt is relative to the size of the economy that must ultimately support it, and the state's capacity to service that debt.

The government plans to achieve this target through:

• keeping growth in net debt at or below nominal GSP growth
• growing investments that offset gross debt when calculating net debt
• generating cash inflows from the optimisation and commercialisation of the state’s assets
• growing balances in the hypothecated trust accounts.

As seen in Figure 14, net debt is forecast to stabilise over the forecast years, however this is not from economic growth alone. Growth in cash and investments and one-off cash inflows from asset initiatives also reduce the reported figure because they offset gross debt. However, some of these investments are held for specific purposes or against other liabilities, so the government cannot use them to repay borrowings.

Figure 14 shows that investments unavailable to repay debt increased from $1.7 billion in 2019–20 to $8.2 billion in 2025–26 and are forecast to reach $12.0 billion by 2029–30.

These investments are held in the Homebuyer Fund, Social Housing Growth Fund, Building and Plumbing Commission, Portable Long Service Leave Authority, Growth Areas Public Transport Fund, Sustainability Fund Trust, Community Support Fund and Victorian Property Fund. Excluding them, net debt would be $168.9 billion this year rather than $160.7 billion and forecast to reach $211.3 billion by 2029–30 rather than $199.3 billion.

Removing the effects of these cash and investment balances provides a clearer view of the net debt the GGS must repay.

Figure 14: Net debt impacts of the investments unavailable for debt offset

Source: VAGO, based on the AFR and state Budget.

The 2026–27 Budget forecasts $4.6 billion in cash inflows from asset commercialisation and capital repatriation initiatives, including $1.1 billion in 2026–27 from extending the Public Lottery licence.

Together, growth in cash and investments, including balances held in hypothecated trust accounts, and cash inflows from asset commercialisation and capital repatriation, support the government’s forecast net debt trajectory.

The forecast $4.6 billion of inflows in the short term reduces the government’s borrowing requirement and supports its net debt target. However, some initiatives, such as the 40-year lottery licence extension, bring forward cash that would otherwise be received by future generations. Capital repatriations from the public corporations may reduce their financial resilience and increase interest costs where they reduce capital available to support future operations, with potential implications for future fees and charges.

Without these inflows, and assuming all other factors remain unchanged, reported net debt would reach $203.9 billion, or 25.0 per cent of GSP, by 30 June 2030, $4.6 billion and 0.6 percentage points above the current forecast of $199.3 billion, or 24.4 per cent of GSP.

How growing trust account balances temporarily reduced net debt and signal delayed spending

Cash held in trust accounts is recorded as a financial asset and deducted from gross debt when calculating GGS net debt. However, because these balances are restricted for specified purposes and expected to be spent in the future, their effect on reported net debt is temporary.

Figure 15 shows the growth in the significant trust account balances over the past 9 years, from $0.7 billion at 30 June 2018 to $1.6 billion at 30 June 2026. Most of this growth occurred after 2021–22, when the combined balance was $0.5 billion.

Figure 15: Significant trust account balances

Source: VAGO, based on financial report disclosures of departments.

By 2025–26, the Growth Areas Public Transport Fund held $707.7 million, the Sustainability Fund Trust held $567.2 million and the Community Support Fund held $345.7 million.

Unspent trust balances reduce reported GGS net debt while they sit in cash or other financial assets. They do not improve the state’s fiscal capacity because the government cannot use them to fund other priorities or repay debt.

Persistent growth in these balances raises 2 issues. First, reported net debt appears stronger than it will be once the funds are spent. Second, the growing balances point to delays in delivering the transport, sustainability and community initiatives for which the money was collected.

Our prior-year recommendation on this trend therefore stands. We recommended that departments responsible for administering these assess whether current spending patterns are effectively achieving the purposes for which the trust accounts were established.

We further suggest DTF consider reporting the effect these financial assets have on the net debt measure when setting, assessing and reporting on fiscal targets. This would provide additional insight into the state's underlying debt position.

The government has not met its target of stabilising interest costs as a share of revenue and income

In the 2020–21 state Budget, the government introduced a key financial measure and target to stabilise interest expense as a share of revenue and income over the medium term.

In practical terms, the target is intended to stop interest costs consuming an increasing share of the state’s revenue and income, which reduces funding available for services and infrastructure.

This target did not specify the level at which interest expense should stabilise, or by when. This limits transparency about the level of interest costs the government considers sustainable, making it difficult to assess progress against its debt strategy.

The government has not met this target. Five years on, interest expense as a share of revenue and income has significantly increased and is forecast to continue rising through to 30 June 2030.

Figure 16 shows this share increased from 3.2 per cent in 2017–18 to 6.9 per cent in 2025–26 and is forecast to reach 9.4 per cent by 2029–30. By then, close to one dollar of every 10 the GGS earns will go to servicing debt instead of services.

Figure 16: Interest expense to revenue and income

Source: VAGO, based on the AFR and state Budget.

Why interest expenses have not stabilised

GGS interest expense has not stabilised because the government continues to borrow and refinance maturing debt at higher rates than those originally secured.

Interest rates were historically low from 2020–21 to 2022–23 during the COVID-19 pandemic but have since increased. As a result, the average interest rate on GGS debt has risen, and the 2026–27 Budget forecasts it will reach 4.9 per cent by 2029–30. Higher rates increase both the cost of new borrowings and the cost of refinancing existing debt.

Until debt growth slows, interest costs will keep rising, making it more difficult for the government to achieve its medium-term target.

What is the state superannuation liability

The state's public sector defined benefit superannuation plans hold liabilities for employees’ superannuation entitlements. These plans are not reported in the AFR because the state does not control them. These plans, which mainly cover GGS employees, are not fully funded. Because the state is responsible for funding these obligations, the AFR recognises a corresponding liability.

At 30 June 2026, the state recognised a $17.1 billion net superannuation liability. In accordance with AASB 119 Employee Benefits, this liability is valued using a discount rate based on Australian Government bond yields. However, the state's funding requirement is determined using the expected return on the superannuation fund's assets. On this basis, the state's actuarial service provider has estimated an unfunded superannuation liability lower than what is reported in the AFR, at $12.8 billion as at 30 June 2026.

The unfunded superannuation liability for funding purposes is lower than the superannuation liability reported in the AFR because the expected return on assets of the superannuation fund is currently greater than the Australian Government's bond yield.

The government aims to fully fund this unfunded superannuation liability by 2035 through annual contributions, which is a key financial measure.

The government exceeded its 2025–26 contribution target to offset previous shortfalls

Following the Victorian election in 2022, the government deferred annual contributions by $3.0 billion from 2023 to 2027, as outlined in Labor's Financial Statement 2022. The government did not explain the reasons for varying and deferring these payments. However, it keeps its commitment to fully fund the liability by 2035.

As Figure 17 shows, actual contributions in 2023–24 and 2024–25 were below the amounts in the government’s 2022–23 revised contribution plan, which reflected the deferral. In 2025–26, however, the government contributed more than planned to offset these shortfalls and support its target of fully funding the liability by 2035.

Figure 17: Planned and actual contributions to the superannuation liability

Source: VAGO, based on the AFR and state Budget.

Achieving the funding target by 2035 remains challenging in the current constrained fiscal environment, particularly given competing budget pressures and the emerging risks. We discuss this further in Part 4.

What is fiscal sustainability?

To remain fiscally sustainable, the state must be able to fund current and future expenditure requirements from revenue earned, absorb foreseeable changes and materialising risks and manage the impact from these factors to changing revenue and expenditure requirements.

Improved results have not removed underlying fiscal pressures

The government reports progress against its fiscal strategy, including restoring budget balance, strengthening cash and operating results, and stabilising then reducing net debt as a share of the economy.

The design of the strategy is a matter for the government. However, recent results do not reflect a sustained improvement in the state’s underlying fiscal sustainability.

While some recent financial outcomes and forecasts have improved, fiscal cash deficits persist, debt remains high, and long-term expenditure pressures continue to grow. Headline results continue to be influenced by non-recurring items and timing effects rather than structural improvements in revenue or expenditure.

The state continues to face significant long-term challenges, including expenditure growth, rising debt and interest costs, infrastructure funding requirements and emerging fiscal risks.

The government’s fiscal strategy

The state Budget sets out the Victorian Government’s long-term financial management objectives for the GGS along with short-term objectives and key financial measures and targets for achieving the government's fiscal strategy.

The state’s long-term financial management objectives, as outlined in the 2025–26 state Budget, are:

• sound financial management
• improved services
• building infrastructure
• efficient use of public resources
• a resilient economy.

In the 2020–21 state Budget, the government set out a 4-step fiscal strategy aligned to its key financial measures and sustainability objectives. In the 2024–25 Budget, the government added a fifth step. The 5-step fiscal strategy comprises:

• Step 1: Creating jobs, reducing unemployment and restoring economic growth
• Step 2: Returning to an operating cash surplus
• Step 3: Returning to operating surpluses
• Step 4: Stabilising net debt as a proportion of GSP
• Step 5: Reducing net debt as a proportion of GSP.

Together, the government expects the 5 steps to support economic recovery, budget repair and a transition to lower debt.

The government acknowledges that reducing spending, especially on inefficient and non-priority programs, as well as increasing operational efficiencies and process improvements across departments and programs are important for meeting its current fiscal strategy.

The current strategy is weighted towards short-term outcomes.

Progress against short-term targets

The government has met some headline steps in its fiscal strategy, including reporting operating cash surpluses since 2022–23 and an operating surplus in 2025–26.

However, the reported cash surpluses were materially supported by non-recurring transactions, grant timing and one-off revenue. The 2025–26 operating surplus and forward estimates are also influenced by non-recurrent funding. These results satisfy headline targets but do not yet demonstrate sustained improvement in the underlying balance between revenue and expenditure.

Historical performance has yet to demonstrate sustained debt stabilisation, although net debt to GSP is forecast to stabilise from 2027–28. Net debt increased from 4.3 per cent of GSP in 2017–18 to 24.0 per cent in 2025–26, showing that debt grew faster than the economy. Higher borrowings and refinancing costs have also increased interest expense, reducing the funding available for services and infrastructure.

As a result, the net debt stabilisation and reduction remains largely dependent on forecast improvements and continued nominal economic growth. Overall, while the state has made progress against the strategy's short-term fiscal targets, there is limited evidence that Victoria's fiscal resilience has strengthened in a sustained and structural way.

Financial measures and targets continue to lack specificity

To support its financial objectives, the state has set key financial measures and targets, discussed in Part 3. Over the last 13 years, financial measures and targets have been gradually revised from specific and quantifiable to less-specific targets, as outlined in Appendix F.

Except for the measure to fully fund the superannuation liability by 2035, the state’s other key measures do not include explicit targets or clearly defined timeframes.

Our recommendation from our 2022–23 report therefore remains appropriate. We continue to encourage DTF to work with the government to set specific targets and clear timeframes for achieving its key financial measures.

Greater transparency required to strengthen accountability and confidence

The International Monetary Fund's April 2026 Fiscal Monitor: Fiscal Policy under Pressure: High Debt, Rising Risks report found that, in a high-debt environment, transparency and clear communication have become central to maintaining fiscal credibility. It noted that hidden deficits, vague promises of future adjustment and opaque contingent liabilities undermine that credibility. It also found that credible medium-term debt management strategies are essential to managing borrowing costs and signalling a commitment to prudent fiscal management.

These findings are relevant to Victoria. The state's fiscal targets have no set levels or specific timing. The fiscal strategy does not measure the fiscal cash balance. There is no plan to repay debt. Some growing obligations and climate-related risks, which we discuss later in this part, are not fully visible in reported outcomes.

As a result, Parliament and the community may find it difficult to assess the state's underlying financial position, its exposure to fiscal risks, and whether current actions are sufficient to address longer-term fiscal pressures. Clearer reporting would strengthen accountability and provide greater transparency over long-term fiscal management.

Savings initiatives

Savings and efficiency measures remain a central part of the government’s fiscal repair approach. They include workforce and executive reductions, lower spending on consultants and labour hire, reduced accommodation costs and shared-service reforms.

The 2025–26 mid-year Budget update and the 2026–27 state Budget included an additional $1.6 billion in savings targets for 2026–27 to 2029–30. This is in addition to $12.8 billion announced in state budgets from 2017–18 to 2025–26.

Figure 18 shows $14.6 billion in cumulative savings announced to be realised from 2017–18 to 2029–30, including $6.3 billion expected over 2026–27 to 2029–30.

Figure 18: Cumulative saving initiatives announced in the state Budget

Source: VAGO, based on state budgets.

Delivering these targets will be difficult while demand for, and the cost of, public services continue to rise. Unless savings are recurring and exceed growth in expenditure, they will not materially improve the underlying budget position.

These savings initiatives have not translated into a stronger underlying fiscal position through lower debt or rebuilt fiscal capacity. Instead, they have largely supported new and expanded expenditure.

Financial Management Act reforms

Parliament amended the Financial Management Act 1994 on 19 August 2025 to strengthen financial discipline and accountability. The reforms require departments and public sector entities to operate within approved budgets, notify DTF of expected overruns, and strengthen the responsibilities of accountable officers, responsible bodies and chief finance officers.

These reforms are a positive step towards strengthening financial discipline and accountability across the public sector. The amendments do not introduce changes to strengthen the state's focus on long-term financial sustainability planning.

The Independent Review of the Victorian Public Service

The Independent Review of the Victorian Public Service report was made public in December 2025. The review recommended broader reforms across a range of areas including stronger prioritisation and base-funding reviews, evidence-based savings, earlier action on emerging pressures, simpler public sector arrangements, digital and shared-service reforms, and stronger federal–state engagement.

It also made specific recommendations to the government on fiscal management and strategy, including:

• integrating savings programs with the government’s overall fiscal management strategy and budget and resource allocation process
• enhancing fiscal management and strategy, including addressing the ongoing impact of pandemic-era budget practices
• adopting good budget practices to create budget capacity and build confidence in Victoria’s budget and financial position
• providing a strong pathway to manage debt servicing over the medium to longer term
• adhering to enhanced budget rules to support the fiscal strategy and improve the effectiveness, efficiency and quality of government service delivery.

The government released the review and its response in December 2025, accepting some recommendations and rejecting others.

Implementation has so far focused on short-term savings, workforce reductions and some entity reforms. Recommendations relating to fiscal management and strategy have not yet been actioned and are expected to commence after the November 2026 election.

This delay risks reducing the review to a short-term savings program, while the underlying drivers of expenditure growth, debt and fiscal pressure remain unresolved.

The review did not examine the infrastructure program or debt management strategy.

COVID Debt Repayment Plan

The government established the plan in the 2023–24 state Budget to meet the servicing costs of $31.5 billion in COVID-19-related debt over the 10 years to 2033. It is funded through temporary land and payroll tax levies, government savings and efficiencies, and the Victorian Future Fund.

The plan does not directly repay debt. Instead, it uses levy revenue, savings and investment returns to reduce future borrowing and offset debt-servicing costs. The government expects these measures to offset the $31.5 billion in debt and $12.7 billion in estimated interest expenses over the 10-year period.

Since 2023–24, the government has collected $3.1 billion from the payroll tax levy and $3.4 billion from the landholdings levy. At 30 June 2026, the Victorian Future Fund held $10.9 billion in investments, including $236 million from land-sale proceeds and $2.8 billion in investment returns over 3 years.

The government has not publicly reported progress against the plan since it was introduced. Parliament therefore cannot readily assess whether the plan is on track or how much it has reduced future borrowing and interest costs.

Our past recommendations have not been actioned

Initial steps have been taken to address the state’s financial challenges through the initiatives described above and support fiscal repair. However, these measures remain short-term and focused on addressing immediate fiscal pressures rather than building longer-term financial resilience. They do not yet demonstrate how the state will address the structural drivers of expenditure growth, manage rising debt and interest costs, or restore fiscal capacity over the longer term.

Our recommendations over the past 4 years to strengthen fiscal management, debt management, long-term planning and transparency remain largely unactioned. While some recommendations have been acknowledged, progress in addressing the underlying fiscal challenges identified in our previous reports has been limited.

Collectively, these recommendations sought to encourage a longer-term approach to managing the state’s finances. They were aimed at moving beyond the short term, reactive responses to fiscal pressures and addressing underlying financial challenges and emerging financial risks we have identified and reported over time.

They also highlighted the need for a well-defined, long-term plan to guide government decisionmaking, support the sustainable allocation of public resources, monitor emerging risks and transparently report progress in managing the state’s fiscal sustainability. Without this plan, it remains unclear how current initiatives will address the state’s longer-term fiscal challenges.

For these reasons, our previous recommendations remain relevant and are reproduced at the beginning of this report.

The need for action on these recommendations is reinforced by the persistent and emerging risks to the state’s long-term financial sustainability. These risks are discussed in sections 4.2 and 4.3.

Understanding what makes up the state's debt

Debt consists mainly of interest-bearing liabilities raised through domestic borrowings from the TCV. It also includes other interest-bearing liabilities, such as lease liabilities, service concession arrangement liabilities and deposits and advances received.

Figure 20 shows the composition of the state's borrowings at 30 June 2026 for both the GGS and the State of Victoria (SoV).

Figure 20: Composition of the GGS and the State of Victoria borrowings

Source: VAGO, based on the AFR and state Budget.

At 30 June 2026, the GGS owed $188.9 billion in domestic borrowings, the majority of which was borrowed from TCV, as well as $7.0 billion in lease liabilities and $7.5 billion in service concession arrangement liabilities and other borrowings. These liabilities totalled $203.3 billion.

At the SoV level, domestic and foreign currency borrowings totalled $217.3 billion, the majority of which were issued by TCV to bondholders. The state also had $8.1 billion in lease liabilities and $13.9 billion in service concession arrangement liabilities and other borrowings. These liabilities totalled $239.3 billion.

Debt growth is forecast to continue through to 2030

GGS gross debt grew from $41.6 billion in 2017–18 to $203.3 billion at 30 June 2026, an average growth rate of 22.6 per cent per year. It is forecast to increase to $244.9 billion by 30 June 2030, growing by an average of 4.8 per cent per year over the next 4 years.

State gross debt grew from $53.5 billion in 2017–18 to $239.3 billion over the same period, an average annual growth rate of 20.9 per cent per year. It is forecast to increase to $300.9 billion by 30 June 2030, growing by an average of 5.9 per cent per year over the next 4 years.

Figure 21 shows the GGS and SoV gross debt growth from 2017–18 through to 2029–30.

Figure 21: Victoria's gross debt

Source: VAGO, based on the AFR and state Budget.

The 2026–27 Budget sets the government’s capital program at $181.4 billion, comprising $7.7 billion for new projects and $173.7 billion for existing projects. The total includes expenditure already incurred as well as $121.8 billion of future expenditure, comprising $26.9 billion in 2026–27 and an aggregate of $94.9 billion in later years.

Of the total capital program, $55.8 billion relates to GGS projects and $125.6 billion to public nonfinancial corporation projects. The government estimates more than half of the future capital expenditure is expected to be funded through additional debt.

Looking beyond the government's debt sustainability measure

Sustainable debt management is critical to Victoria’s long-term fiscal sustainability. It enables the government to fund services and infrastructure, respond to future shocks and support intergenerational equity.

Steps 4 and 5 of the government's fiscal strategy aim to stabilise and then reduce net debt as a percentage of GSP by 2030. They aim to progressively improve operating cash surpluses and grow the economy, allowing a greater proportion of capital expenditure to be funded from cash rather than debt.

While this strategy outlines the government’s intended direction of debt relative to the size of the economy, it does not establish a long-term net debt-to-GSP target or other measurable debt management objectives. As debt and the cost of servicing it continues to grow, the absence of clear targets and debt management objectives makes it difficult to assess how the government intends to manage the long-term risks associated with rising debt.

The government assesses the financial impacts of debt through the following measures:

• net debt as a share of GSP
• interest expense as a share of revenue.

To assess debt sustainability more broadly, we also consider the following measures, which provide additional insight into the GGS's debt exposure and the capacity to service it:

• gross debt to GSP
• gross debt to revenue
• interest costs of new and refinanced debt.

The results of these measures show Victoria’s GGS debt burden has increased significantly and debt servicing costs are placing growing pressure on the Budget.

We examine these measures in the following sections.

Gross debt is forecast to stabilise as a share of GSP despite continuing to rise

Gross debt to GSP is a key measure of the total debt exposure, and an indicator of the borrowings on which the government pays interest relative to the size of the economy.

As explained in Part 3, the government uses net debt to GSP as its primary measure of debt management. However, gross debt to GSP provides additional insight because it shows the state’s total borrowings relative to the size of the economy.

Unlike net debt, gross debt does not deduct financial assets. Some of these financial assets are held for specific purposes or support other liabilities and commitments and may therefore be unavailable to repay borrowings.

An increasing gross debt-to-GSP ratio means that state debt is growing faster than the economy while a decreasing ratio means debt may still be growing, but more slowly than the economy. An increasing and higher ratio indicates a greater debt burden relative to the state’s economic base. This can increase debt servicing costs, weaken the net operating result and make debt repayment harder.

Figure 22 shows that gross debt as a share of GSP has rapidly grown over the last decade, from 9.0 per cent in 2017–18 to 30.3 per cent in 2025–26.

The 2026–27 Budget forecasts that gross debt will stabilise at around 30.7 per cent as a proportion of GSP in 2026–27 before declining marginally from 2027–28. However, stabilising debt as a share of the economy does not reduce the state’s total debt burden.

Figure 22: GGS gross debt and GGS gross debt to GSP

Source: VAGO, based on the AFR and state Budget.

Gross debt increased by an annual average of 22.6 per cent from 2017–18 to 2025–26. This growth was driven by significant infrastructure investment and the government’s response to the pandemic. Gross debt is forecast to reach $244.9 billion by 30 June 2030. This means the government plans to borrow, through debt and other sources, a further $41.6 billion between 2026–27 and 2029–30.

Sustained nominal economic growth is important to the government achieving steps 4 and 5 of the fiscal strategy. However, economic growth alone may not address the sustainability risks associated with rising debt and servicing costs.

The state's current debt strategy relies on economic growth to stabilise debt measures

Gross debt growth accelerated from 9.8 per cent in 2017–18 to an annual average of 37.5 per cent between 2019–20 and 2021–22, partly reflecting the government’s response to the COVID19 pandemic. It slowed to an average of 14.4 per cent a year between 2022–23 and 2025–26. Over this period, gross debt grew faster overall than nominal GSP and state revenue, although revenue growth exceeded gross debt growth in 2025–26.

Figure 23 shows that debt growth is forecast to slow and fall slightly below nominal GSP growth but remain well above real economic growth from 2027–28. This ongoing debt growth reflects the state’s reliance on borrowing to fund its significant infrastructure program and fiscal cash deficits.

Figure 23: Annual growth of debt, nominal GSP and real GSP

Source: VAGO, based on the AFR and state Budget.

Governments commonly use debt-to-GSP ratios to assess debt sustainability because both debt and GSP are measured in current nominal dollars. The state's debt management strategy uses this measure and assumes debt growth will broadly align with nominal GSP growth, before the ratio declines over the medium term.

Nominal GSP measures economic output at current market prices and therefore includes inflation and real growth in economic activity. Over the forward estimates, gross debt is forecast to grow by an average of 4.8 per cent a year compared with average nominal GSP growth of 5.0 per cent a year.

Real GSP removes the effect of inflation and measures growth in the underlying volume of economic activity. Real GSP growth is forecast to remain modest, averaging around 2.2 per cent growth each year over the forward estimates. This means the debt strategy does not assume debt will stop growing or decline. It assumes nominal economic growth will slightly outpace debt growth, allowing the debt-to-GSP ratio to stabilise and modestly decline over time.

However, because most forecast growth in nominal GSP comes from inflation, rather than stronger real economic activity, the stabilisation of debt to GSP does not necessarily reflect an increase in the state’s underlying productive capacity. While inflation may support revenue growth, debt sustainability ultimately depends on whether government revenue grows sufficiently to service rising debt and interest costs. For this reason, we also consider debt servicing ratios when assessing debt sustainability.

Gross debt is forecast to reach 195 per cent of revenue by 2030

Gross debt as a proportion of operating revenue provides a useful measure of debt sustainability because it compares debt with the revenue available to support it.

Operating revenue is the government's primary source of cash inflows used to pay interest and repay principal. Comparing debt to revenue therefore provides a clear indication of the government’s capacity to meet its debt obligations.

It is particularly relevant when:

• state revenue growth diverges from economic growth
• interest rates exceed GSP growth and revenue growth.

Figure 24 presents annual growth in the gross debt to revenue ratio.

Figure 24: GGS gross debt as a proportion of revenue

Source: VAGO, based on the AFR and state Budget.

Gross debt has almost tripled relative to the state's revenue base over the past 9 years, rising from 64 per cent of revenue in 2017–18 to 178 per cent in 2025–26. The ratio improved slightly in 2025–26, because revenue grew faster than gross debt (12.9 per cent compared with 8.2 per cent), but this improvement is forecast to be temporary.

Over the forward estimates, gross debt is forecast to grow by an average of 4.8 per cent a year, compared with revenue growth of 2.1 per cent, increasing gross debt to 195 per cent of revenue by 2030.

Although nominal GSP is forecast to grow slightly faster than gross debt, growth in the economy does not necessarily translate into equivalent growth in government revenue.

The state's capacity to service and repay debt depends on the revenue it raises and receives, which may not grow in line with GSP. Without stronger revenue growth or slower debt growth, the state's debt burden will remain elevated and continue to place pressure on long term fiscal sustainability.

Interest expense is consuming a larger share of revenue – interest bite

The interest bite shows how much of the government’s operating revenue is used to pay interest on debt. As it rises, less revenue is available for services, infrastructure and other priorities.

The growing interest bite increases the state's exposure to changes in borrowing costs and available revenue. As more revenue is committed to paying interest costs, the government's capacity to respond to economic shocks, fund new priorities and absorb higher interest rates becomes constrained.

The government aims to stabilise GGS interest expense as a share of revenue. However, the target does not define a sustainable level or set a timeframe for achieving it. This makes it difficult to assess the government’s intended outcome and progress.

Figure 25 shows the growth in interest expense and interest expense as a share of operating revenue from 2017–18 to 2029–30.

The interest burden increased from 3.2 per cent of operating revenue ($2.1 billion) in 2017–18 to 6.9 per cent ($7.9 billion) in 2025–26. It is forecast to reach 9.4 per cent ($11.8 billion) by 2029–30. This trend shows that interest costs are growing faster than revenue available to support them. This increases the risk that debt-servicing costs will constrain future budget flexibility, particularly if revenue weakens or borrowing costs remain elevated.

Material entities’ accounting records and controls are adequate, but need improvement

We found that material entities generally maintained accounting records and internal controls that supported the preparation of complete, accurate and reliable financial reports. These arrangements provided a sound basis for financial reporting.

However, adequate overall arrangements do not remove the need for continued improvement. We identified weaknesses in the design and operation of some controls, as well as opportunities to strengthen management review and governance oversight.

If entities do not address these matters promptly, they remain exposed to operational and financial risks and are more likely to experience errors, delays and inconsistent financial information, particularly during periods of significant organisational or system change.

Recurring weaknesses demand clearer accountability, stronger governance and more effective oversight

We continue to identify recurring weaknesses and issues in financial management frameworks of material entities across 4 key areas:

• Issue 1: Governance and record keeping for major system changes
• Issue 2: Financial reporting and asset information for major projects and complex arrangements
• Issue 3: Persistent IT control weaknesses that undermine control effectiveness and may expose entities to disruption, financial losses and fraud
• Issue 4: Accountability and assurance over outsourced financial processes, raised in prior years.

These issues are not isolated administrative shortcomings.

Material entities should use these findings to assess whether similar gaps exist in their own frameworks to address the risks they create.

Where we have raised these issues, or they otherwise apply, governing bodies and accountable officers should assign clear ownership, set time-bound remediation actions and monitor whether improvements are operating effectively.

We discuss the findings, their consequences and relevant examples in further detail below.

Weak project governance and record keeping in the VicGov People payroll system migration

DGS owns VicGov People, which is progressively replacing individual departments' payroll systems. During 2025–26, DGS, DTF and Department of Premier and Cabinet (DPC), along with some of their portfolio agencies, migrated to this system. This major cross-government change affected payroll processing and information used in financial reporting.

We found significant weaknesses in project management, governance, accountability and record keeping. There was limited evidence that DGS had established and maintained governance arrangements that provided clear accountability and oversight of the migration. It also could not provide evidence that key migration checks, reconciliations and approvals had been completed and reviewed. Decisions and testing outcomes were not consistently documented, final records were not centrally retained and no formal handover to business-as-usual operations occurred. By the time we requested evidence, the project team had largely disbanded and no individual retained complete knowledge of the work performed.

We also identified weaknesses in user access and change management controls during the system migration. These weaknesses exposed departments and agencies using VicGov People to an increased risk of unauthorised access or system changes, payroll errors, incomplete or inaccurate financial information, and delays in identifying and resolving issues.

Although our audit testing identified no material errors in payroll amounts or disclosures at 30 June 2026, similar weaknesses in future migrations could disrupt payroll processing, compromise information integrity and result in non-compliance with financial reporting framework timelines.

Before further system implementations or rollouts, DGS should complete a post-implementation review to identify the causes of the governance failures, capture lessons learned and assign responsibility and timeframes for corrective action. Future migrations should include clear accountability, documented review and approval points, central retention of evidence and a structured handover before project teams disband.

We have raised this matter, together with associated recommendations, in our reporting to DGS.

Major projects and complex commercial arrangements heighten financial reporting risks

Victorian public sector entities increasingly rely on third-party providers to deliver services, manage systems and undertake major projects. These arrangements can create significant financial reporting risks when entities do not identify and assess the accounting implications early and clearly establish information and assurance requirements upfront in associated contracts.

Although delivery may involve other public entities, private contractors and specialist providers, the responsible entity remains accountable for complete and reliable financial reporting.

Our 2025–26 audits identified 2 recurring weaknesses. Entities did not:

• establish information requirements early to ensure sufficiently detailed asset information was captured during construction
• resolve ownership, control and accounting implications before entering complex arrangements.

These weaknesses delayed asset transfers, created uncertainty over recognition and measurement, and required substantial year-end remediation by management and auditors.

The Metro Tunnel, Footscray Hospital and BioNTech arrangements illustrate why accounting, asset record and reporting requirements need to be built into project planning, procurement, contracts and governance arrangements from the outset.

Asset information was not captured during construction

Entities need detailed records of an asset's components, cost, ownership and attribution to support its transfer, valuation, depreciation and ongoing management. For both the Metro Tunnel and new Footscray Hospital, this information was not sufficiently developed during construction and had to be assembled as completion approached.

The $17.0 billion Metro Tunnel went live in November 2025 and was transferred to VicTrack by DTP. However, DTP's contract with the main builder did not require the builder to provide the component information needed to support part of the transfer. DTP therefore had to compile it from other sources.

The $2.2 billion new Footscray Hospital opened in February 2026 and was intended to transfer from the Department of Health (DH) to Western Health. The transfer did not proceed in 2025–26 because DH could not provide sufficient building componentisation, IT asset records, or asset attribution and ownership information. Western Health therefore could not reliably recognise and classify the assets, estimate depreciation or meet its future reporting and asset management obligations.

DH retained the hospital's assets and liabilities in its report, so the delay did not affect the state's overall reported financial position. It committed to obtaining the necessary information, including through quantity surveyors and valuers where required, to support transfer in 2026–27 requiring additional effort and resources.

Accounting treatment was resolved after contract execution

DJSIR entered a service concession and lease arrangement with BioNTech to establish a clinical-scale mRNA manufacturing facility, research hub and associated infrastructure in Victoria. The arrangement involves significant government funding, complex governance and several asset classes, including land, buildings and specialised manufacturing equipment.

DJSIR had not fully resolved the financial reporting implications before entering the agreement. As construction progressed, it had to reassess which assets it controlled, when they should be recognised and how they should be measured, requiring extensive specialist accounting advice and valuation work.

The assessment appropriately treated the manufacturing equipment as a service concession asset and the facility building as a separate lease arrangement. However, resolving the accounting treatment after the agreement commenced created uncertainty and made it more difficult to obtain information needed for accurate financial reporting, resulting in additional effort at year-end.

Contracts did not specify the information entities required

These issues arose from different projects but point to the same underlying weakness: financial reporting requirements were addressed after key delivery and contracting decisions had been made.

For major projects and complex arrangements, entities should:

• identify accounting, ownership, control and asset-recognition implications during planning and procurement
• specify in contracts the financial and asset information that delivery partners must provide, including its timing, format and level of detail
• maintain component, cost, attribution and ownership records throughout construction rather than reconstructing them at completion
• establish governance and assurance processes that monitor whether information remains sufficient for financial reporting and asset transfer.

Embedding these requirements early reduces the risk of delayed transfers and costly remediation. It also helps entities meet their accountability and transparency obligations, by providing the information needed to demonstrate how public funds have been used, account for these assets created through those resources and provide reliable information to Parliament and the community.

We have made a recommendation for material entities to address this issue. See the recommendation table at the beginning of this report.

Why IT controls are important

Effective IT controls are fundamental to protecting the integrity, confidentiality and availability of government information and services.

Weak controls can allow inappropriate access, unauthorised changes and suspicious transactions to go undetected. This exposes entities to fraud, financial loss, data breaches and service disruption, and can undermine the reliability of information used for financial reporting and operational decisions.

These risks are real. Public sector fraud, cyber incidents and failed system implementations have disrupted essential operations, exposed sensitive personal information, caused financial losses and required costly, prolonged remediation.

Little improvement in recurring IT weaknesses

Our audits continue to identify weaknesses in foundational IT controls across many material entities. There has been little sustained improvement. Entities still do not consistently restrict user and privileged access, monitor high-risk activity, or control changes to critical systems.

As shown in Figure 42, deficiencies increased between 2021–22 and 2025–26, with user access management remaining a major contributor. Our increased audit focus on information systems in the past 6 years partly explains the increase, but not why longstanding weaknesses remain unresolved or why foundational controls continue to operate ineffectively.

Figure 42: New and unresolved IT control deficiencies

Source: VAGO.

Higher staff turnover, complex access arrangements and greater reliance on interconnected systems make these controls harder to administer, but also more important to remediate promptly.

The recurring weaknesses, and their exposure, are summarised in Figure 43.

Figure 43: Recurring IT control weaknesses

Source: VAGO. ⁽¹⁾Queensland Audit Office, Information systems governance and control, including the Queensland Health Implementation of Continuity Project, Report to Parliament No. 7 for 2010, June 2010.

Remediation requires stronger governance

Management and those charged with governance should ensure control weakness remediation is clearly assigned, prioritised and actioned within realistic timeframes, with verification that completed actions are effective. Where high-risk findings remain unresolved, entities should implement and monitor interim controls and actively monitor the residual risk.

As Figure 44 shows, 89 high and medium-risk IT control findings remained open at 30 June 2026 at material entities. Of these, 35 (39 per cent) were first identified in 2023–24 or earlier, more than the 23 open findings raised in 2024–25 and the 31 raised in 2025–26. This age profile shows that some entities are not addressing known weaknesses with sufficient urgency.

Figure 44: Open IT observations by year they were identified 

Source: VAGO.

Entities commonly attribute delays to competing priorities, unsecured funding for ageing systems, staff turnover, limited specialist or in-house capability, and legacy-system dependencies. These barriers may complicate remediation, but they do not reduce the exposure or remove the need for escalation.

Our recommendation from last year remains relevant. See Appendix E.

Why assurance over service providers matters

Public sector entities increasingly rely on external parties to perform key functions, manage information and process transactions on their behalf, impacting financial reporting.

Outsourcing an entity’s financial management activities does not transfer accountability. The accountable officer remains responsible for these activities, including obtaining appropriate assurance over outsourced and shared services and sufficient evidence that service providers’ controls operated effectively throughout the period.

Entities lack sufficient assurance over the outsourced services

We continue to find that entities relying on service providers often do not:

• obtain a controls assurance report covering the services used and for the full financial year
• assess and address reported control exceptions or perform the complementary controls for which they remain responsible
• set clear contractual requirements for the assurance that service providers must supply, including when it is due and the consequences if it is not provided.

Where assurance over a provider’s controls is unavailable, entities must establish an alternative assurance program to gain comfort. Several entities did neither and therefore could not demonstrate effective control over material financial reporting processes for which they remained accountable, as required by the Standing Directions 2018 under the Financial Management Act 1994, specifically Standing Direction 3.4 – Internal control system and Instruction 10 – Managing shared services and outsourcing arrangements.

Entities should define their information and assurance needs before entering a service arrangement, include these requirements in the contract and confirm annually that the assurance obtained covers the services and period relied upon.

Our recommendation from last year remains relevant. See Appendix E.

The following example illustrates the risks that can arise from outsourced service arrangements and the importance of effective oversight and assurance by entities.

ESSSuper highlights broader financial reporting and business risks from outsourced services

ESSSuper illustrates the broader risks that entities face when they rely on outsourced service organisations. It outsourced core member administration and fund accounting services to Iress and its subsidiary, Financial Synergy. Iress's superannuation business was subsequently acquired by Apex Group in June 2025.

Independent assurance reporting identified weakness in controls at the service organisation. In November 2024, ESSSuper commenced Federal Court proceedings against Iress and its subsidiary, Financial Synergy, alleging contractual breaches and precontractual misrepresentations in the delivery of administration and technology services that affected members. Management has also identified issues with the service organisation fund accounting services.

The claims against Iress and Financial Synergy currently remain before the court. The dispute illustrates the potential consequences for internal controls and member services.

Although ESSSuper is not a material entity to the AFR, its membership data is important to the state because DTF relies on complete and accurate ESSSuper membership data to value the state’s unfunded defined benefit liability and determine the future funding contributions. At 30 June 2026, ESSSuper funds accounted for $16.4 billion, or 95.4 per cent, of this liability. Victorian public sector employees also depend on ESSSuper to administer and report their benefits accurately.

These issues demonstrate the need for entities to maintain strong oversight of outsourced services and obtain reliable assurance that key controls are operating effectively.

A 7-year remediation resolved a longstanding issue

Since 2019 we have reported significant weaknesses in VicTrack's accounting records for property, infrastructure, plant and equipment.

Its fixed asset register did not consistently identify individual assets, recognise assets promptly, or accurately record capitalisation, work in progress, disposals and replacements. At the peak of the issue, VicTrack could not adequately identify assets with a carrying value of $9.6 billion.

VicTrack and DTP have worked together since then to resolve these issues. From 2022–23 they implemented an asset collection and attribution framework. We confirmed that it operated effectively for most assets added since 2019, meaning newly acquired assets are now recorded completely and accurately. The remediation program reduced inadequately identified assets from $9.6 billion in 2019–20 to $1.4 billion at 30 June 2025.

VicTrack completed the final stage of the program in 2025–26. It reviewed and corrected existing records, matched assets to information in VicTrack's and DTP's asset management systems, and wrote off assets that could not be substantiated or were no longer in use. It identified sufficient information for 2,130 assets worth $1.3 billion, 93 per cent by value of the remaining $1.4 billion population under review. Our testing found no material deficiencies.

Across the program, VicTrack remediated records for $14.1 billion of assets and wrote off or disposed of $3.5 billion.

Figure 45 shows VicTrack's asset write-offs and disposals by financial year.

Figure 45: Assets written off and disposed of by VicTrack

Note: Numbers may not add up due to rounding.
Source: VAGO.

This outcome shows what sustained management attention can achieve on a complex financial management problem. It required a dedicated multi-year program, collaboration across the transport portfolio, access to asset information held in separate systems, and a willingness to write off balances that could not be supported.

VicTrack’s financial report is no longer affected by historical issues over its underlying asset records, of which we now no longer include as a basis in our modified audit report. As discussed in Part 2, our modification relating to how VicTrack accounts for its lease arrangement with DTP remains.

Enduring asset management practices

The remediation involved more than correcting VicTrack’s fixed asset register. VicTrack and DTP also strengthened the capability, accountability, processes and oversight needed to maintain accurate asset records and prevent the weaknesses from occurring.

VicTrack established dedicated asset accounting capability and clearer ownership of asset information. It also clarified responsibilities between its finance and operational asset teams and DTP.

VicTrack and DTP have introduced processes to:

• confirm that the required asset information is available before an asset is recognised or capitalised
• review asset additions, transfers, disposals and replacements
• periodically review asset useful lives, condition and valuation information
• review and challenge information that DTP provides and escalate incomplete information.

Management also established ongoing oversight of these processes, including reporting to those charged with governance and maintaining sufficient capability to operate these processes. Sustaining these arrangements will be critical to keeping the fixed asset register accurate, and supporting VicTrack and DTP to meet the requirements of DTF’s Asset Management Accountability Framework.