VIC infrastructure spend from operating surplus not debt

While surpluses are forecast over the forward estimates, "building for growth" in Victoria will require strong fiscal management and expenditure control, Victorian Treasurer Michael O'Brien has told a CEDA audience in Melbourne.

"It's really easy to get yourself into a black hole, what's hard is getting out. We'd like to not get ourselves into that hole in the first place - keep a tight rein on expenditure, don't over estimate revenue and keep it in surplus," he said

He said the Government is forecasting growth averaging 4.1 per cent over the next four years and while this is not back at pre-GFC levels, it is considered a step up.

"We do think the Victorian economy is strengthening, and we do think that will flow through to our revenue growth," he said.

"Victoria is not doing too badly compared to other states. It is only Victoria and WA that have surpluses forecasted across the forward estimates."

However, with revenue challenges continuing, expenses needed to be constrained, he said.

"Difficult decisions have been made to get expense growth down…We can't keep having growth in expenses outstripping growth in revenue," he said.

He said growth in expenses over the past 11 years had been eight per cent, while revenue growth had only been 7.3 per cent a year.

"We've been able to cut the cost of running government, reducing waste, reducing mismanagement and getting better value for money," he said.

However, operating surpluses will be critical in the coming years as the government takes on the task of funding infrastructure from operating surpluses, he said.

"We want to fund infrastructure spend from operating surpluses rather than debt," he said.

"We expect that by 2015-2016, we will be able to fund the entire infrastructure program in terms of the government contribution to it, from our operating position."

He said big infrastructure projects, such as the East-West link announced in the recent Budget, have the potential to deliver the same productivity and state liveability gains as CityLink.

"What CityLink did for Melbourne in the 1990s, the East-West link will do for Melbourne and Victoria today," he said.

"It's an expensive project - $6-8 billion. But the cost of not doing it now, doesn't mean it will get cheaper in the future, it will get more expensive.

"The cost to this state of our lost productivity and damage to our liveability will be even greater."

While Victoria has not been immune from some of the economic difficulties and challenges that have faced Australia and the globe, "the coalition has taken a view that we need to make sure we put measures in place to cut our cloth to fit," he said.