Public sector unions are intensifying their demands for significant wage increases in Victoria, putting pressure on the Allan government as it grapples with a ballooning wages bill. The Labor Party is attempting to rein in expenditures in preparation for the state election scheduled for late 2026.
One of the most contentious negotiations involves teachers who are advocating for a 35 percent pay rise over three years. Meanwhile, the government is also engaged in discussions with various other public sector workers, including mental health professionals and medical scientists, whose agreements have either expired or are set to expire in 2026.
The mid-year budget update revealed a forecast for employee expenses to rise to $39 billion in 2025-26, with an anticipated increase to $40 billion the following year. This forecast falls short of the Treasury’s projection of a 3.25 percent rise in the wage price index and the government’s policy of maintaining a 3 percent annual wage growth.
David Hayward, an emeritus professor of public policy at the Royal Melbourne Institute of Technology, expressed concern over the government’s position. “It’s not like the government has shown itself to be particularly strong in the face of opposition,” he stated. Hayward noted that the unions are likely aware of the government’s precarious position, especially with an election on the horizon.
In previous years, the Victorian government faced substantial backlash from public sector workers, including teachers, nurses, and paramedics, who demanded fair compensation. Following successful negotiations, nurses secured a 28.4 percent increase over four years, while police received an 18 percent pay rise over the same period. Teachers have stated they are prepared to take industrial action if the government does not offer pay rates that reflect the value of their work.
The Australian Education Union’s Victorian branch president, Justin Mullaly, emphasized the disparities in teacher pay across state lines. “In 2026, an experienced teacher working in Wodonga would be $15,359 better off a year, or $295 a week, by crossing the Murray and teaching in a public school in Albury,” Mullaly explained. He pointed out that education support employees in Victoria earn only $56,580, which is 10.5 percent less than their counterparts in New South Wales.
Healthcare workers, including cleaners and clerks, have already initiated strikes after rejecting the government’s 3 percent pay rise offer. Mental health workers at Forensicare are also calling for wage increases that align with those received by nurses.
A spokesperson for the Victorian government stated that its public sector wages policy is fully funded and aims to balance fiscal responsibilities with employee needs. “We value the work of all public sector workers, and we engage constructively with unions to reach outcomes that are fair for staff and responsible for the broader community,” the spokesperson affirmed.
The government is also under pressure from credit rating agencies regarding its financial stability. S&P Global issued warnings about the state’s financial situation earlier in December, highlighting the challenges posed by a projected $11.5 billion funding shortfall for the Suburban Rail Loop.
Since taking office in 2014, the Victorian Labor government has faced scrutiny over its fiscal management. Over the past eleven years, Treasury forecasts have consistently predicted employee expenses would grow between 3.1 percent and 5.2 percent annually. In reality, these expenses have increased between 5.7 percent and 8.7 percent each year. The Allan government recently adjusted its forecast for the 2025-26 wage bill, increasing it by 0.5 percent to $39 billion.
As the government prepares for the upcoming election, it faces the dual challenge of meeting public sector demands while maintaining fiscal responsibility. The outcome of these negotiations could significantly impact both the state’s budget and its political landscape in the years to come.
