VAGO 2024-25 Audit: What It Means for Your Council (Free Analysis)

Victorian councils collectively manage $153 billion in infrastructure assets. The Victorian Auditor General's Office (VAGO) just told them they are not keeping up.

The VAGO Results of 2024–25 Audits: Local Government, released March 2026, paints a picture that should concern every council asset manager, CFO, and director of infrastructure in the state. The headline numbers are stark, but the structural trends underneath them are what matter.

Here is what the audit actually found, what it means for your asset management strategy, and what you can do about it before the next budget cycle.

The Capital Underspend Is Not a Budgeting Problem

In 2024–25, Victorian councils budgeted $4.19 billion in capital works. They delivered $3.37 billion. That is $820 million left on the table — a 19.6% underspend. In the prior year, the gap was 17.1%.

This is not a one off. VAGO identifies a persistent trend over five years. Councils are consistently setting capital targets they cannot achieve.

The instinct is to blame external factors — contractor availability, supply chain disruptions, planning approvals. And those are real. But the VAGO recommendation (the first new recommendation in this report) goes further: councils need to review their capital budgeting process itself. Are the assumptions realistic? Is past delivery performance being factored in? Are projects being phased appropriately?

In practice, the underspend often reflects a capacity problem rather than a funding problem. Councils approve ambitious programmes without the project management bandwidth to deliver them. The money exists. The ability to convert it into completed works does not.

For asset managers, this is the conversation to have with your executive team before the next budget round: what did we actually deliver last year, and what does that tell us about what we can realistically commit to next year?

The Renewal Gap Is Widening

The sector's capital replacement ratio dropped to 1.47 in 2024–25 — the lowest recorded across the nine year VAGO dataset. The renewal gap ratio fell to 1.06, meaning the sector is barely keeping pace with depreciation.

Both ratios have been declining for three consecutive years.

But the sector averages mask a more serious story at the individual council level. In 2024–25:

1. 12 councils recorded a capital replacement ratio below 1.0, meaning they spent less on assets than those assets depreciated
2. 45 councils (57% of the sector) recorded a renewal gap below 1.0
3. 12 councils failed on both measures simultaneously — a compounding infrastructure deterioration signal

The councils in the dual underspend category are predominantly regional and small shire councils. These are the councils managing the longest road networks per capita, the oldest building stock, and the narrowest rate bases. The infrastructure they are responsible for is not discretionary — it is the roads, bridges, drainage, and community facilities that regional communities depend on every day.

The AASB 13 Revaluation Changed the Numbers, Not the Assets

The most dramatic number in the report is the $9.4 billion fair value adjustment driven by the AASB 13 amendments. This brought total sector PP&E to $153 billion.

That revaluation reflects updated accounting guidance on current replacement costs — including disruption costs, site preparation costs, and costs to restore other entities' assets. The accounting change is legitimate. But it changes nothing physically. No asset is in better condition today because its replacement cost went up on a spreadsheet.

The risk is that higher asset values create a false sense of security in budget conversations. A council that reports $2 billion in infrastructure assets may feel asset rich. The question is whether the condition of those assets matches their book value — and whether the council is investing enough to maintain that condition over time.

Notably, 36 councils (46% of the sector) have not fully implemented the AASB 13 recommendations from the prior year report. Asset policies have not been updated. Accounting position papers have not been developed. Finance teams are not sufficiently familiar with the valuation methodologies being applied to their largest asset class.

Small Councils Face a Structural Challenge

Four councils recorded a loss in 2024–25 — all small shires. If financial assistance grants were allocated to the year they relate to rather than the year received, 14 councils would have reported a loss.

At 11 small councils, capital grants equated to over 50% of capital expenditure. Without ongoing government support, these councils cannot construct, replace, or renew their assets. This is not a management failing — it is a structural reality of serving small populations across large geographic areas.

The VAGO data shows that small shire councils' average adjusted underlying result has been negative for the entire five year period from 2020–21 to 2024–25. Regional councils show a similar pattern.

For these councils, the asset management strategy cannot be the same as a metropolitan council with a $200 million rate base. The approach needs to be fundamentally different: focused on condition based prioritisation, targeted renewals, shared service models, and evidence based business cases for state and federal grant funding.

What You Can Do Now

If you are an asset manager, infrastructure director, or CFO at a Victorian council, here are four things worth doing before the next budget cycle:

Look at the last three years of capital budgets versus actual delivery. If you are consistently underspending by 15% or more, your budgeting process needs recalibrating — not your ambition.

Don't rely on the sector average. Calculate your council's renewal expenditure as a ratio of depreciation. If it is below 1.0, quantify the cumulative gap and translate it into service level risk.

The AASB 13 uplift may have increased your reported asset values. Check whether your condition data and renewal funding have kept pace with the higher values. If your assets are worth more on paper but your maintenance budget hasn't changed, the gap between book value and actual condition is growing.

The councils that secure capital funding — whether from their own rate base or from state and federal grants — are the ones that can answer hard questions about condition, consequence, and cost with evidence, not assumptions. If your asset data cannot support a defensible business case, fixing that is the highest value investment you can make this year.

Download the Full Analysis

We have produced a comprehensive analysis of the VAGO 2024–25 audit data covering all 79 Victorian councils — including capital replacement trends, renewal gap ratios, financial stress indicators, and council by council performance.

Want to Discuss What This Means for Your Council?

SAS Asset Management works with Victorian local governments on asset management strategy, maturity assessments, and capital investment planning. Get in touch.

Related Resources