Victorian Treasurer Kim Wells has talked up the state's underlying $144 million surplus for 2011/12 as a new report pointed to ailing business confidence and a grim economic outlook for the state.
An update released on Monday by NAB said the Victorian economy was continuing to perform below the national average, with state final demand (SFD) growth slowing to 2.1 per cent in 2011/12.
'Victorian businesses are among the least confident in the country,' NAB said in a statement.
'Were it not for household consumption of services (accounting for 1.2 percentage points of the SFD growth), the Victorian economy would look much weaker on national accounts measures.
'In all, we see Victoria remaining the weakest of the mainland states and conditions are likely to remain very subdued through 2012/13.'
Mr Wells said the important thing was for the government to focus on its strategy of delivering surpluses and building budget capacity to invest in infrastructure.
He pointed to the $144 million underlying surplus achieved in 2011/12, which was in line with expectations.
'This is a good result despite very difficult times,' Mr Wells said.
'There are only two states that are running a surplus - Victoria and WA - the commonwealth are nowhere near it.
'These are sustainable surpluses.'
Mr Wells said the high Australian dollar, global economic volatility and the flatlining of property prices were ongoing challenges.
Spending was $1.8 billion more than in 2010/11, reaching $47.3 billion in 2011/12.
In its report, Treasury said spending growth stemmed mainly from normal salary increases for public servants delivering frontline services, as well as extra police, protective services officers and hospital staff.
Increased demand-driven funding paid to vocational education providers and higher interest on debt used to fund infrastructure projects also contributed to the spending growth.
Victoria recorded a general government operating result of $571 million, but the underlying surplus was $144 million, excluding commonwealth grants initially planned for 2012/13, which were brought forward to the 2011/12 financial year.
Mr Wells will deliver the next budget update before December 15.