Total spending by the Victorian government hit $112.1 billion over the past 12 months, exceeding budget expectations by $891 million.
All up government spending increased by $7.9 billion, or 7.6 per cent on the year before, according to the 2025-26 Annual Financial Report, published on Thursday by the state's Treasury and Finance Department.
The main drivers of the blowout included public sector wage hikes and billions of dollars of interest being paid on the state's debts.
Public sector wages totalled $46.1 billion for 2025-26 - $405 million higher than budget expectations - primarily stemming from additional teaching staff and higher than expected police spending.
However, the state's net debt of $160.7 billion was $4.7 billion lower than what was estimated in the May budget.
Interest on the debt totalled $7.9 billion - up $1.1 billion on the year before due to additional borrowing and higher overall interest rates.
Premier Ben Carroll said he aimed to make the necessary changes to cut government spending and further reduce debt - but said changes take time.
"I do believe in paying down debt," he said.
"I do believe we need to do it though in a sustainable, responsible way ... that we don't hurt frontline services."
One of the changes to streamline spending was the ongoing merger of the Suburban Rail Loop Authority (SRLA) into the Victorian Infrastructure Delivery Authority (VIDA), Mr Carroll said.
"I'm very committed to being a financially responsible premier that will do everything he can with the treasurer to save taxpayer dollars where we can," he said
"We're not going to increase taxes, but we are going to continue to look at major projects - how do we procure them better, smarter, and over time."
Another of the government's cost-saving measures - to merge government investment agencies, Breakthrough Victoria and LaunchVic - ripped millions of dollars out of a plan by the opposition to pay private hospitals to perform surgeries to slash public sector wait times.
Opposition leader and Shadow Treasurer Jess Wilson said the report confirms the state's finances were on the rocks under Labor.
"Despite a $2 billion bailout from the Commonwealth government and higher revenue due to inflation, net debt and interest repayments continue to climb.
"The only way to clean up the books, lower costs and deliver a government that works is by backing my Liberal and Nationals team this November."