The data centre boom is propping up Victoria’s economy – and that could be a blessing or a curse

November 12, 2026 — 12:09pm

Victoria’s next state government will inherit an economy dogged by rising unemployment and slower growth that is propped up by the increasingly volatile boom in data centres.

The final budget update before the November 28 election, released on Thursday, revealed a modest improvement to the state’s operating surpluses since the last fiscal report in October because of a surprise $1.3 billion dividend from WorkSafe.

It confirmed Victoria’s economy would grow by just 1 per cent this financial year, down from 1.5 per cent predicted in the state budget in May, and will underperform budget expectations in the two following years. Economic growth is now not due to hit 2.5 per cent until 2029-30.

Outside of the pandemic, this year will be the lowest rate of growth since 2008-09, when the global financial crisis rocked world markets.

Unemployment will also be higher than expected over the next two years, sitting at 5.25 per cent compared to 4.75 per cent forecast in the budget.

“Lower population growth, as well as persistent inflation and the RBA’s monetary policy response, present headwinds for economic growth, both in Victoria and nationally, for 2026-27,” Treasury’s pre-election budget update says.

Consumer spending will be held back by rising interest rates and inflation, as well as a slowdown in population growth now that federal migration changes have begun to take effect.

But Treasury said investment in data centres was expected to “offset these headwinds”, and that business spending would provide some ballast to the economy.

“Growth will be primarily driven by data centre investment, while investment in renewable energy projects is expected to remain elevated,” the report says.

Treasury cautioned that data centre investment had the capacity to both help and hinder the economy, with a large pipeline of projects at the mercy of community concerns and mounting government efforts to regulate the industry.

“Investment in data centres could be stronger than implied in the base case forecasts,” the report says.

“However, community concerns, evolving regulation, and investor scrutiny could lead to delays or affect the feasibility of projects, slowing growth in data centre investment.”

The comments highlight a thorny issue for political parties as the imposition of data centres on communities has become an election issue in many seats – just as it was in the recent US midterm elections.

Even as the centres have helped the economy, the pace of the rollout has been met with local pushback.

This has been exemplified by NextDC’s M3 centre in West Footscray. Its expansion plans now face a major delay after energy network operator Jemena paused plans to install 15-metre-high industrial power poles on suburban streets, in response to protesting residents.

The delay cost the company hundreds of millions of dollars in forecast earnings, as it suffered a 40 per cent drop in its share price.

Before the election campaign, Labor unveiled a policy requiring a 150-metre buffer zone between data centre buildings and homes, along with requirements for them to source their own renewable energy and recycled water.

Opposition Leader Jess Wilson has pledged that if the Coalition wins the election, data centres will not be built in or next to residential areas or in green wedge zones.

The pre-election budget update confirmed the operating surplus would be $700 million in this financial year and $800 million in 2027-28, up from a $300 million surplus forecast in both years last month.

This has been primarily driven by $1.3 billion in revenue the state will receive from WorkSafe. The income had not previously been disclosed, with Treasury reporting the income had been reclassified from “capital repatriations to dividend revenue”.

Although the Transport Accident Commission regularly makes dividend payments to state coffers, WorkSafe has not made a contribution for years and was instead propped up by a bailout worth more than $1 billion over several years from 2020. The government declared in 2023 that it was “fundamentally broken”.

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